Tuesday 21 April 2020


Getting out of the lockdown. 

Variety Engineering 

I´ve been writing about  “Enterprise Complexity Models” recently (Espejo, 2018). I have grounded this model in the Viplan Methodology (Espejo, 1993, Espejo and Reyes, 2011), and think they have something to say about COVID-19 as a huge problematic situation. Graphically the Viplan methodology is built up with two concentric learning loops (Observing, naming, designing and implementing); 
  • the inner (cybernetic) loop which elaborates the structure of an enterprise relevant to a problem situation, like the sustainability of our society and planet, or more diretly like COVID-19. The enterprise needs good structural conversations to handle effectively problem situations. 
  • The outer (problem solving) loop is focused on particular problem situations, such as the enterprise's contribution to the sustainability of social health in its environment, or more directly to the health of people. 
The Viable System Model -VSM- (Beer, 1979)  clarifies necessary conversations that often restrict proper communications between organisational actors and work out who are the right people to participate in these conversations throughout an enterprise to discuss the problematic issue. The VSM help visualisation the structural conditions most conducive to appropriate conversations leading to effective action. In the Viplan Methodology, 
  • the cybernetic -inner- loop encourages stakeholders to question the structures underpinning their problem solving relationships in the context of the enterprise's purposes. The common situation is that these structures inhibit to different degrees these problem solving processes and the purpose of the cybernetic -inner- loop is making the enterprise's structure more effective. As this happens the enterprise's improved cybernetics, facilitates better conversations to improve the enterprise's management of problem situations. 
  • In the learning - outer loop- stakeholders take advantage of the enabling structures to engage in processes of continual learning about this situation, such as sustainable individuals' health. They engage in problematic issues, agree about any changes that they want to make to improve the situation. 
  • The two loops are reflexive in the sense, that as the cybernetics of the enterprise improves in the inner loop, the collective appreciation of their problem situations  becomes more sophisticated in the outer loop and better appreciation of these situations are reflected in changed conversations and structures in the inner loop, recursively. 

I will focus applying Viplan to COVID-19 on the UK National Health Service  (NHS) as the enterprise in the Inner Cybernetic Loop. The Outer Loop is the hugely complex management of COVID-19, the pandemic that we are experiencing at the present time. The situation is one of an extended network of enterprises, including many government enterprises, dealing with COVID-19. From the perspective of complexity, and in particular of the NHS, this enterprise is experiencing a situation of huge imbalance of its complexity with that of the population being affected by the pandemic. From the perspective of variety engineering (Espejo & Reyes, 2011) the challenge is working out a selection of variety operators to balance the NHS complexity with that of the population experiencing the corona virus. The design and selection of these operators is particularly relevant in today’s globalised and environmentally sensitive, societies. Most of this variety needs to be absorbed within the communities themselves, leaving a residual variety manageable by the enterprise's variety operators. These operators define an enterprise’s new strategies to produce and make available their products and services, intertwined with the technologies-in-use. Each of these decisions generates complexity that the organisational system needs to contain structurally in ways that enhance its capacity to respond to environmental pressures. The current pandemic  offers an instance of mismatches between variety operators; the diagnostic tests necessary to work out numbers of infected people, and also numbers of people already possessing antibodies,  seem to be out of sync with the operational capacity of the health service (capabilities of hospitals and research laboratories). Increasing hospital capabilities, to receive infected people, requires amplification of variety of hospitals and other services, such as ambulances and medical general practices. At the same time, learning about infected people and people with antibodies requires reducing the variety of the overall population to those at risk and those with limited risk if they remain at the front end of health and other economic services. The overall performance to counter the COVID-19 pandemic requires managing the balancing of ongoing interactions between people in the community and health services, that is, between people demanding services (amplifying demand) and health delivering services reducing the variety of those in  need (attenuating demand). As the Viplan Methodology suggests, structurally this implies going beyond the National Health Service to create a much larger Enterprise Complexity Model (ECM), enabled by powerful scientific models and by autonomous units, within autonomous units (i.e. a recursive structure). 

This is a heuristic in the generation of ECMs. As new technologies and scientific models suggest alternative structural and technological models, most likely their structural mapping will require an alternative unfolding of complexity that is, new considerations about the distribution of autonomy and discretion (Espejo and Reyes, 2011). These are platforms to work out necessary structural changes in the NHS, using the VSM, to increase reflexively the quality of the network of enterprises responding to COVID-19. In the extreme the situation may show that the current extended transformation of the NHS is unviable, suggesting that before reconfiguring its resources, it may need questioning its identity and purposes altogether; I hope that this will not be the case for COVID-19. 

ECMs offer different strategies to manage an enterprise’s complexity.  New scientific models and technologies are changing the nature of these enterprises. From the point of view of attenuating the pandemic, people’s distancing has been driven by scientific models, and the construction of new health facilities has been driven by amplifying building complexity through new technologies. In these cases key business functions such as finance, personnel are likely to remain centralised reducing the scope for entrepreneurship at lower structural levels. In this example, at a first glance, the unfolding of complexity is likely to be skewed towards the top. In other words the scope for local autonomy appears to be restricted by the product and its technology. However, this needs not be so. Similarly, these local enterprises might well be networks of more specialised enterprises, whose viability is equally necessary, and so forth. 

These examples highlight the amplification and attenuation of an enterprise’s complexity driving the emergence of an ECM. In the NHS’s case, it is clear that in addition to the amplification of its activities it needs attenuators of environmental complexity. Without effective means to reduce undesirable local variations as a result of people´s behaviours and resources (e.g. people’s distancing to 2m.), that is, as a result of weak amplification of government’s policies to attenuate local communities’ behaviours, the overall performance of the NHS and society will suffer (e.g. more infections and deaths). This latter aspect shows that developing mechanisms for organisational cohesion, which respect the autonomy of their suppliers but also standardise their products, are necessary for services viability. Furthermore, it needs to manage relationships between subcontractors, customers and a range of other agents. The more the NHS and its regional and local units enable direct interactions among local suppliers and between these and people in the community, the more of its environmental variety will be absorbed in the environment itself, reducing the residual variety that the Government and the NHS  needs to manage directly. Similarly, there are a range of variety operators that the NHS needs designing in order to have an effective ECM. Also, it needs making viable its own enterprise transformation; that is, its orthogonal transformation to those transformations of the hospitals and services constituting the organisational system it leads. Say, it needs capacity to create, design and implement networks (i.e. its own primary activities) to support local clinical services, which are the platform for the ECM own learning. These platforms are  its strength and also its Achilles heel. It offers the strength of the great flexibility to reconfigure resources and develop new capabilities should the circumstances so require, but it has the challenge of building up relationships with distributed enterprises which use different standards and make, among other aspects, more difficult complying with safety and security  requirements.

Based on the above considerations,  supported by variety engineering the Viplan Methodology suggests managing people's current situation of lockdown towards a strategy aimed at reducing costs to society and people. Beyond the excessive centralisation of decisions at the level of the UK's Cabinet, it is necessary to consider more targeted measures under  local organisational systems, constituted by decentralised local health authorities, local authorities and local enterprises integrating their responses. I'm proposing to discuss the integrated use of variety attenuators and amplifiers in the communities. In other words, getting out of the lockdown requires considering together variety attenuators of community aspects such as age, health profile, geography and sophistication of local services and variety amplifiers like levels of testing in the community and also sophistication of local services, to really be able to isolate cases and more effectively identify where transmission is happening to support with reduced risk getting out of the current lockdown.


1979 Beer S. The Hearth of Enterprise. Wiley, Chichester
2018 Espejo R. An Enterprise Complexity Model: Enterprises, Organizational Systems, and Dynamic Capabilities in F. Stowell Systems Research for Real-World Challenges.IGI Global. Hershey, USA
2011 Espejo R. and A. Reyes Organisational Systems: Managing Complexity with the Viable System Model, Springer, Heidelberg

Saturday 17 September 2016

An Agenda for social transparency: making sense of big data

Brexit and the American elections this November provide examples of the art of lies in advanced democracies. It can be argued that we encounter this problem with referenda and elections in all democracies; effective interactions between citizens, experts and policy-makers are a major challenge.  Representative and participative democracies need further development to be effective. We find that there is a significant distinction between the “emotional truth” emerging in citizens minds and the “real truth” as constructed by solid debates supported by experts, think tanks and political parties and also by the serious press.  This distinction touches key aspects of communications in a complex world, today dominated by big data, which in practice implies data overload for citizens and politicians. For both it is increasingly difficult to distinguish lies from truths. For the former big data may support conflating aggregated trends, such as inequality and zero hour contracts with deciding whether or not being part of the European Union in the UK.  Politicians, also overwhelmed by data -in an uncertain world- may construct and impose their truths influenced by ideology, weak expert advice and short term political interests. The challenge is reducing the gap between sound evidences and emotional constructions. It may be argued that it is a social responsibility, similar to having a Justice System, to create aiding procedures to contextualize fairly that that is heard through the media and social networks. In advanced democracies, for social issues whether of global or local relevance, it is irresponsible not to challenge the arguments advanced by those forming public opinion with the sieve of authenticity, legitimacy and truthfulness (Habermas, 1979).

But, it may be argued that the huge complexity of social processes make impossible dealing with this challenge. However, this is not necessarily the case. Complexity management tools, such as variety engineering (Beer, 1979, 1985, Espejo & Reyes, 2011),  should expose in daily conversations the damage produced by those charismatic demagogues that give evidences lacking in authenticity, legitimacy and truthfulness. Not only it is necessary to keep open checks and balances between multiple viewpoints to bridge gaps between emotional and real truths, but also it is necessary to count with the moral guidance of experts regulating on-going dialogues, offering judgements about precisely the authenticity, legitimacy and truthfulness of those constructing social opinions. These judgements of the dialogues constructing “real truths” -enmeshed in moral mazes- should be distributed throughout society; they are necessary at multiple levels from the local to the global. This proposal may appear as a utopia; however I propose that its realisation is necessary for mature democracies. This proposed utopia is an invitation to move in the direction of more transparent societies (Wene & Espejo, 1999). 


S. Beer, (1979) The Heart of Enterprise, Chichester: Wiley

S. Beer, (1985)  Diagnosing the System for Organizations, Chichester: Wiley

R.Espejo & A. Reyes (2011) Organizational Systems: Managing Complexity with the Viable System Model. Springer Heidelberger

Habermas, J. (1979). Communication and the Evolution of Society. Boston, Beacon Press.

Wene C. and Espejo R. (1999). A Meaning for Transparency in Decision Processes, in Proceeding of Conference on Values in Decisions on Risk (ed. Kjell Andersson), Sponsored by European Commission/DGXI, Swedish Nuclear Power Inspectorate and Swedish Radiation Protection Institute, Stockholm, 13-17 June 1999



Thursday 18 June 2015

Good Social Cybernetics is a Must in Policy Processes

In a recent paper, to be published later this year, I Illustrate supported by Beer’s Viable System Model and four vignettes, the relevance of self-organisation, recursive structures, self-reference and reflexivity in policy processes. For me these are concepts to ground policy processes in good cybernetics. The four vignettes illustrate the cybernetics underpinning 'real-world' policy failures. Through this post I want to involve you, the reader, in the development of our understanding of the cybernetics of policy processes. I propose we try together discussing aspect of self-organisation, recursive structures, self-reference and reflexivity in policy processes. I suggest that Beer’s recursive structures and second-order cybernetics have much to contribute to their understanding and betterment. 
Policy processes such as development of clean energy, local child care, transparent marketing, economic development and so forth bring together multiple social and economic agents in the creation, regulation and production of these policies and through their interactions, mostly by self-organisation, they may produce organisational systems.

Self-organisation brings together social agents as they find common purposes and recognise the need to interact. But chance interactions may take too long to form policies and some form of guidance, such as political leadership, incentives for particular relations, resources allocation, applications of disruptive technologies and others may help in these processes. These are catalysts of organisational systems (Espejo and Reyes, 2011). However, it is common for agents to have a poor appreciation of the resources and interactions that are necessary to make particular policies viable, leading to painful shortcomings for people and society. Beer’s Viable System Model offers a heuristic to construct policies through effective communications. This model highlights requirements to enable the emergence of organisational systems from fragmented resources. Among these requirements are organisational closure, structural cohesion, value co-creation, structural recursion of autonomous units within autonomous units and others. These are requirements for a good cybernetics of policy processes.
In the paper I illustrate these requirements through four vignettes; child services in England, a small company's marketing activities in the English Midlands, alternative energy technologies and global financial services. The child services’ vignette illustrates weak communications between national regulators, local policy implementers and stakeholders. This is an instance of inadequate relational self-organisation. The marketing vignette is an instance of a company that fails developing value co-creation with customers, with the consequence that customers impose their requirements and the company fails to create products of its own design. This is an instance of weak relational reflexivity. The third vignette is an instance of a weak identity of the energy sector as it fails to integrate under the same policy framework energy technology development and energy production. This is a case of a fuzzy self-reference as necessary relations between actors focused on the “outside and then” and on the “inside and now” fail to be developed. The last vignette relates to the 2008 financial crisis. This is an instance of a market driven self-organisation process that failed to recognise that financial services had to go hand in hand with the recursive structure of the economy from the global to the local. These are all instances of situations driven by poor cybernetics.

I would be delighted to hear your reflections about particular policy processes that illustrate problems with organisational closure, structural recursion, structural couplings and so forth. What can we say about improving the cybernetics of policy processes.




Monday 17 September 2012

The Viable System Model and Structural Recursion

Stafford Beer’s Viable System Model and in particular his Recursive System Theorem are often the subject of discussion. In this blog rather than explaining Beer’s work I want to explain how I use it. Indeed I’ve used the VSM for a long time, since the old days in Chile, and in particular I’ve applied the idea of structural recursion to enterprises of all kinds. 
I see structural recursion as a possible consequence of the often tacit strategies used by members of an organisation to manage the complexity that they create, regulate and produce as they deal with a self-defined problematic situation in their medium/environment. I use the term create to point at the meanings (policies, purposes, values and products) that they define to guide their collective actions. These actions produce the organisation’s meanings as experienced overtime by stakeholders. Aligning meaning creation and production requires regulation supporting the organisation’s cohesion and adaptation to its medium/environment.
It is apparent that members of any organisation, whether they are senior managers or shopfloor workers, share the same biology and therefore have similar complexity management capabilities, but often their potentialities are very different. Since potentially problematic situations can imply exceedingly large complexities, a strategy to deal with them is chunking the global problematic situation into chunks (or primary activities as I call them in my work) that we may expect people strive to align with global policies, purposes and values. If these aligned chunks manage to be autonomous themselves and succeed creating, regulating and producing their particular policies and products, the structural and processual implications are amplifying, perhaps in orders of magnitude, the mutual constitution of organisational and environmental complexities. In the end achieving a constructive synergistic ‘unfolding of complexity’ hugely increases the overall situational and organisational complexities. This implies that in the same way that the global organisation articulates its problematic situation, the aligned chunks create, regulate and implement their own meanings; in other words are autonomous themselves creating and dealing with much more complexity than if they were following hierarchical instructions. Indeed this unfolding (i.e. chunking) may now happen within each of the chunks and therefore we are now witnessing a proliferation of situational and organisational complexities relying on the creativity, flexibility and inventiveness of their members. The number of structurally recursive levels in an organisational system is the number of autonomous structural levels producing the organisation’s self-defined meanings. 
Thus, each of the chunks needs resources and competencies to create, regulate and implement their self-defined products; these are systems 5, 4, 3, 2 and 1 in Beer’s VSM or the systemic functions of Policy, Intelligence, Cohesion, Coordination and Implementation in my own language.  These functions must recur in all viable chunks at all structural levels. More significantly, communications among them in the organisational system and with agents in their medium/environment produce recursive relationships of performance, cohesion and adaptation. In viable organisations these relationships emerge from effective complexity management strategies, which rely as much as possible on self-regulation and self-organisation for balancing what in general are asymmetrical varieties (I’m using variety in the Ashby’s sense). This recurrence of systemic functions and relationships for each autonomous chunk is for me the meaning of structural recursion.  The platforms for this recursion are the meanings or policies created by the members of the organisational system, which give them the closure of an autonomous organisational system. These policies are their purposes, values, norms emerging from their communications with agents constituting problematic situations and also most significantly, from their cultural contexts. These are multiple loops of circular causality, boot-strapping and so forth.
Beer’s first insights about this model came from his appreciation of the complexity management strategies of our nervous system as humans co-evolved with their medium. Methodologically, the insights coming from a scientific situation (neurophysiology) helped him to offer a model relevant to organisations and management. This methodology, which connects nature’s evolution and learning, is used in artificial intelligence and engineering today (e.g. mimicking the behaviour of ants, bees and birds).  With adequate methodological support, particularly accounting for people’s purposes, it can also be a most useful methodology for social situations.
I’ve applied structural recursion in a wide variety of situations; there are easy cases where the managerial situation clearly recognises autonomous chunks; this is the case of large corporations that over the years have evolved from functional, centralised structures, to autonomous divisions and strategic business units.  But, for smaller units in SBUs as well as for small and medium sized enterprises it is not uncommon to find that there is no structural recursion; simply, often, chunks are the outcome of hierarchical relationships. Indeed, empirical evidence may suggest that no recursion is happening.  Indeed in all cases recursion can only be established empirically. Of course we can always recognise shortcomings in these ‘unfoldings of complexity’ but in one form or another we start hypothesising chunks and levels creating, regulating and producing their own meanings and then test the hypothesis. There are structural and identity shortcomings that tend to be archetypical, which in practice limit the scope of recursive chunks (see Organisational Systems; Managing Complexity with the Viable System Model, by R. Espejo and A. Reyes, Springer 2011).
More interesting examples of complexity unfolding happen with reference to government policies,  such as health, education, nuclear waste management and so forth, where we find that processes of self-organisation evolve towards some form of structural recursion of the multiple institutional parts creating, regulating and producing that policy, which overtime develop connectivity that eventually may give viability to the policy.

Thursday 22 March 2012

Review of Cybernetic Revolutionaries by Eden Medina, MIT Press, Cambridge Mass, 2011

March 2012

In this book Eden Medina offers a historic review and reflexion of an unlikely project; Cybersyn. It happened in the Chile of Presidente Salvador Allende in the early 1970s. The book offers a most compelling account of an attempt to use science and technology in support of the management of a highly turbulent political process. I was its operational director and therefore had a privileged participation in its unfolding.
Cybersyn, the brainchild of Stafford Beer, was conceived and developed at the same time of publishing Brain of the Firm, the first of his trilogy about the Viable System Model (VSM). He had been pondering about this model for some years and Chile offered the opportunity to use it.
Eden’s historic account is well researched and balanced. As a participant, this account resonates fairly well with my memories. Indeed I disagree here and there with particular recollections and in occasions, as I illustrate below, I would have put the emphasis differently, but overall I feel comfortable with her account even if sometimes it is not favourable to individuals or the project as a whole. Yes, I would have emphasised differently the roles of the Operations Research and Design teams in the project. I would have liked to read more about the huge contribution of the Operations Research group at the State Technology Institute. This team was responsible for modelling some of the technological processes of the public and nationalised enterprises and for designing performance indices to support managers. On the other hand I felt that the role of the team that designed the Operations Room (also operating from the same Institute) appeared over emphasised. No doubt that this latter team made a most powerful contribution to the project, but its overall scale was smaller than that suggested by the book.
Cyberstride, the idea of managing in real time the economy, was the driving force of Cybersyn and in my view it was Stafford’s most powerful vision at a time when global and local management were dominated by historic reporting operating with huge time lags. His concern was reducing the complexity natural to the industrial activities of the country to meaningful levels for effective managerial action, respecting the autonomy of the people, enterprises and overall industrial economy. He referred to this concern as variety engineering. In this engineering he saw computers as nodes in action networks rather than as number crunching machines. At a time when computers were used to routinize operational activities, Beer saw the role of computers in society and the economy as machines to give information to the people for them to act and control their destinies.
Eden rightly gives to Beer’s Viable System Model an important role in the project; however she makes apparent that “Beer was more interested in studying how systems behaved in the real world than in creating exact representations of how they function.”… “Beer’s emphasis on action over mathematical precision set him apart from many of his peers in the academic operations research community who, Beer believed, privileged mathematical abstraction over problem solving”
Stafford arrived to Chile with the manuscript of the book “Brain of the Firm”, which instantly captured the imagination of all of us and also of people further afield. Eden clearly states that from a historic perspective her explanation of the VSM had to be rooted in that book and not in its further developments after Cybersyn and she offers a good introduction to the model. Perhaps what this introduction does not make apparent is that Stafford had not spent much time in methodological considerations for its application and that in fact an important contribution of the local team was unravelling its use. However, the VSM was not used to model the Chilean economy but as a reference for engineering its variety. It gave us a heuristic for designing indices of performance at a number of structural levels, which were hypothesized as recursion levels of the industrial economy in line with the insights of the VSM.
Eden gives compelling evidence about the unavoidable interdependence of technology and politics. Cybersyn, as a technological device, could not free itself from the on-going politics of the day. Its relevance to politics is clearly instantiated by the increasing influence of Fernando Flores - the political leader of Cybersyn- on President Allende’s decisions. At the same time her account of the project itself makes apparent the limited relevance of Cybersyn in the Chilean economic scene. This was the case in spite of Beer’s efforts to catch up with the political chaos. She illustrates this conflict between politics and technology with reference to the publicity received by the project at the time and the project’s schizophrenia. Stafford’ main public speech about Cybersyn at the time was the Richard Goodman Lecture in the UK and she states with reference to this lecture that “By emphasizing technology instead of Cybersyn’s relationship to the social and economic goals of Allende’s nationalization program, Beer failed to definitively separate himself from the technocrats he criticized.”
This book offers a wonderful story about unlikely events that happened 40 years ago that are still relevant today. Personally, with the benefit of hindsight, I could make many criticisms to the work of those difficult but adrenaline-charged days, but in a book with a historic emphasis it would be unfair to criticise Cybersyn with the eyes of the 21st Century and certainly Eden Medina does not do that as she offers a balanced a well contextualised account of Cybersyn.

Raul Espejo

Thursday 14 April 2011

The Viable System Model, Cybersyn and the Financial Crisis

This blog was triggered by a friend’s comments about the value of models and the need to have them for planning purposes. I don’t ignore the value of models, but rather raise the need to connect them to effective action capacity. This point seeks to emphasize the need to embed modelling activities in processes capable of supporting individual and organizational learning thorough the use of models.

The risk I see in the activities of think tanks is that they often are not underpinned by learning mechanisms aligned with the purposes that they manifestly seek to serve. This view emerges from the contrasting experiences I had in the 70s, first in Chile, in the context of Stafford Beer’s inspired CyberSyn Project, and later on at the International Institute for Applied Systems Analysis (IIASA), in the context of my contribution to the Large Organizations Project that included work in the Soviet Union. For almost two years I had the opportunity to experience (albeit at a distance) GOSPLAN’s massive planning processes.

The Chilean experience was an attempt to avoid large planning models in the benefit of models clearly focused on decision groups at the appropriate structural levels, supported by performative indices monitoring the consequences of their use. At least that was the intention. Unfortunately, in addition to the 1973 military coup, which gave no time to underpin structurally these models for effective organizational learning, this project was ahead of its time and lacked the necessary technological infrastructure to be successful. In the Soviet Union planning was supported by very sophisticated models but in practice these were models that reflected the perspectives of scientists at the global level and failed to incorporate the experiences of those affected by them at the intermediate and local structural levels. They had thousands of planners who were planning from the centre the activities of millions whose problems they vaguely understood. This goes without saying that not then, not today, nor in the future they could have the technological infrastructure to make viable this centralising dream.

The complexity of social systems, because of their human fabric, is so large that efforts to manage it with mathematical representations, developed at privileged central positions, are a mirage. In free societies the generation of complexity is distributed and so needs to be its management. This is the complexity management strategy offered by Beer’s Viable System Model; this is the strategy of recursive organizations. Rather than the delusion of large sophisticated representational models to manage social complexity, the strategy is a reflective matching of global, intermediate and local models with organizational response capacity. This matching is a performative strategy that recognises the all too common and often unavoidable errors where there is cognitive (response) capacity to deal with them, and these are errors that reflect socially agreed purposes, which support individual and organizational learning over time.

Ironically, the same mistakes that made planning ineffective in the Soviet Union for decades appear to have played a role in the financial crisis of 2008. These mistakes are evidenced by the behaviour of centres of excellence for economic research and economists before its inception. They supported building complex mathematical models divorced from the complex entanglements of the multiple institutions constituting the global financial system. They failed to see the organizational system, let alone its huge unknowable complexity. They failed to see that this organizational system required the alignment of their tacit global, intermediate and local modelling efforts, on behalf of multiple institutions, to social structures with requisite action capacity. This global organizational system had to be consistent with the visions, purposes and values of political, social and economic policy-makers, beyond the insatiable thirst for profits of financial institutions. This organizational system was necessary to enable structural capacity for distributed learning. This would have given their financial models the capability to support action in the direction of desirable political, social and economic outcomes. This proposition may be seen as idealistic, however we are now hearing from people like Gordon Brown, a past UK prime minister, institutions like the IMF and others the need for global financial regulation, but no one appears to recognise that without, at least, aligned economic projects this regulation will be rudderless and therefore ineffective to avert future financial crises.

Wednesday 26 May 2010

Systemic and Cybernetic Views of the Euro

At the time when Europe was debating adopting a single currency one of my Swiss colleagues asked me about the Euro’s likely success in the longer run. My answer was not an optimistic one. Now, when Europe’s concerns about its currency are increasing by the day, we hear more and more about better fiscal checks and more penalties for those countries that do not comply with the requirements of prudence. Furthermore, some see in the recent decisions to prompt the Euro a whiff of political integration. Let’s reflect upon these concerns and decisions in systemic and cybernetic terms.

It is becoming increasingly apparent that the European Union (EU) is facing a systemic problem; either it accepts that some individual countries, unable to pay their debt, abandon the Euro and take their own decisions or accepts that there is a systemic bond among its members and is prepared to support each of them as they face the relentless and unforgiving forces of the financial markets.  In my view the problem is to go ahead with this second option -apparently the preferred one- without proper acknowledgment that it implies far more than setting stronger controls over the fiscal behaviour. This is a crucial moment for the European project; is it about a European union, as some want, or is it about economic collaboration as some others want? I discuss below the cybernetics of these options.

Are European countries accepting to use a single currency unaware of the operational implications of this acceptance? Is it not that the European Union appears blind to the costly longer term consequences of this acceptance? Let’s discuss the cybernetic argument.

To visualise the argument let’s think about the old Deutschmark at the time of the unification of West and East Germany. At that time Germany made apparent that it was prepared to accept the cost of unification. There we had two countries with significant institutional and economic differences; however the political will to bring them together was unequivocal. West Germany was prepared to allocate the resources, take the time and move relentlessly in the direction of an integrated democratic German state. Over time two states with different degrees of development were prepared to accept the pains of achieving a shared institutional framework, symbolised by the Deutschmark. For the Euro the situation is indeed different. EU countries not only have larger historical, institutional and economic differences but furthermore don’t have the will of an effective integration. Simply, reducing the problem to financial policies supported by strong checks and gruesome penalties is not going to make the trick. The complexity of the situation is far greater; balancing historic, cultural and institutional difference does not happen simply by an institution such as the European Central Bank (ECB) imposing common rules to all member countries. Different institutions in the participant countries imply different meanings for the same rules; some of these institutions may not have the operational depth to produce necessary distinctions nor the practices to achieve expected performance. Even if politicians and economists in these countries shared a similar grasp of these rules the likelihood is that the moment-to-moment actions of millions of citizens in each of these countries will not be aligned. In practice this implies different degrees of compliance with the ECB’s rules and norms. This situation would be very different if countries joining the Euro were ready to leave it as operational stresses suggested that it was better for them, and for the rest of the European Union, to face the situation individually. They would have a larger repertoire of responses; for instance they could devalue their currency, apply local idiosyncratic fiscal policies and even accept a carefully managed default (see Crisis watch by Simon Johnson and Peter Boone, in Prospect, April 2010).

The issue is the degree of cohesion that is expected between the countries belonging to the Euro. The Euro is an institutional mechanism that coordinates operational transactions throughout the countries that accept it as their currency. However, in the end it has to reflect an operational coherence among these countries. If the productivity of some of them is lower than that of others, sooner or later this will be reflected by imbalances in the operational domain. Some countries will succeed exporting their goods and services at the expense of the relative failure of the others. For sometime this imbalance may be absorbed by exports to third countries, however in the end a chronic relative low level of productivity within some countries in the Euro zone will be reflected in financial imbalances. But, the mechanism of devaluation to balance differences in productivity will not be available. Whether or not the financial markets understand the cybernetic underpinning of these imbalances they will taste blood, smell profits and act accordingly.

Audits and checks of the countries’ financial behaviors will not be enough to produce the required balance. Audits may be useful in the informational domain but, unless they are supported by investment and institutional changes the necessary operational adjustments between the member countries will not happen. The loose political arrangements of the Euro zone seem to be a long way from the unification experience of the two Germanys. Operational imbalances are being exacerbated by the recent expansion of the European Union, as well as by the relatively slower economic development of some of the old members. Resources that had supported the development of some of the Mediterranean countries are now flowing to Eastern Europe. The wealth of the union is being spread too thinly and the longer term implications of these policies are glaringly clear; the necessary operational coherence for a shared currency is further and further away.

In summary, in my view, now that the European Union includes 27 countries (and 3 in prospect) of significantly different institutional and economic development, the goal of a unified currency is more and more remote. The cybernetics of this situation supports a looser currency arrangement, where some of the current members of the Euro should be ready to abandon it and where the acceptance of new members into this Club should only happen after passing successfully significant operational and financial tests.

Thursday 29 April 2010

Centralization and Decentralization

My last posting reflected upon “What’s System Thinking” and referred to the issue of centralization and decentralization in organizations. Is it always desirable to make decisions locally? When are local decisions more advantageous than global decisions and vice-versa? Indeed there are multiple factors impinging on these choices. In particular new communication and information technologies are changing the balance in both directions for different issues. The cost of communications has been falling dramatically in recent years. Today more people than ever before can be involved in local decisions. Equally, today more people than ever before can contribute with local knowledge to global decisions.

Structurally, it is desirable to have relatively small teams responsible for the full value chain of a business process. They can operate from inputs to outputs through a transformation process that is theirs. These teams absorb most of the customers’ variety locally. This approach allows these customers to recognise the ‘faces’ of those responsible for the products and services they consume. For instance citizens in need of housing services would be able to interact with the unit responsible for assessing their needs as well as for delivering the services. This avoids fragmenting service delivery; proximity allows for the right hand to know what the left is doing. However, the increasing complexity of people’s demands and the constraints imposed by culture and resources tend to force some degree of centralization as organizations look for synergies and economies of scale. People are distributed in varied geographic areas, require different types of services, have different urgency and so forth. These are complexity drivers guiding the structuring of housing services and if this structuring is not thought through the chances are that poor service delivery will dominate their interactions with citizens.

Most significantly, local teams need global information to close effectively local loops. Among others, policy priorities are decided globally, specialised knowledge and resources are often pooled together beyond local teams and the economies of scale offered by available technologies may tempt centralisation. But, centralization increases the chances of functionalism at the expense of holism. Service delivery teams risk becoming customer service units with limited appreciation of, and responsibility for, the total service they offer.
Beyond managing the value chain, those providing services at the local level need to have flexibility to define their own policies. This is necessary to respond to local needs and avoid the uniformity of ‘faceless’ bureaucrats following the dictate of global policies. Distributing the activities of the value chain at different structural levels, beyond the flexible response of autonomous local teams, increase the chances of reducing local officials to the role of post boxes distributing to other groups the responsibilities to deal with customers’ requirements. As they do this officials lose contact with the very people that they are supposed to service. This is why local services for large markets require creating local policies within the framework of a global policy. They also require negotiating and accepting specific programme requirements, including the use of scarce resources. To avoid fragmentation it is necessary truly systemic, synergistic, organizations that succeed balancing local responsiveness with global coordination of policies. Organizational systems need cohesion and adaptation to manage the complexity of their tasks.

In this effort for holism the cost of communications is changing the balance between centralization and decentralization. Today’s decreasing cost of communications makes possible creating virtual teams that facilitate decentralisation. Members of centralised groups with specialised knowledge can be effective contributors for the creation and implementation of local policies. People responsible for the use of expensive centralized resources can be made (virtually) part of local teams and thus accountable to the team. These are cases of resource centralization and functional decentralization. Equally, those working in these groups, with local knowledge of stakeholders can influence more effectively global policies by communicating to policy-makers local responses to exiting policies.

From the perspective of organizational design the challenge is fostering a cascading of self-contained product/service teams which make possible the progressive integration of functions into larger self-contained groups that match customers’ needs at different performance requirements. For instance, for housing services, local teams focused on providing particular types of services can be embedded in regional units with functional capacity for the deployment of building and maintenance resources according to local needs. What is particular to this proposition is that building and maintenance resources provide a more global performance requirement, namely building and maintenance capabilities, at the same time that they are contributors and accountable to local teams for local services. As the cost of communications is reduced the allocation of resources can be reconfigured transforming the organization’s capabilities. Constituting effective local teams and coordinating these multiple teams in a global context becomes increasingly challenging but also, with the support of new information and communication technologies, manageable and potentially more effective.

Wednesday 14 April 2010

What is Systems Thinking?

I have just finished reading the book “Systems Thinking in the Public Sector; the failure of the reform regime and a manifesto for a better way” (2008) by John Seddon, Triarchy Press, Axminster, UK. This book has received good reviews from politicians, seniors civil servants and specialised journalists. And, indeed, Seddon's understanding of systems thinking is compelling; it makes apparent through many examples in the public sector the always present tendency to fragment policy implementation. In particular his focus is on the current tendency to fragment services between the front end work and the back room support. He illustrates abundantly how front end civil servants take off their sight from customers’ request by passing them to back end workers. No one person or team deals from the beginning to the end with the particular customer, fragmenting the service and leaving in no one’s land responsibility for its performance. The voids in between the end-to-end time for the service grow and grow, transforming a service that could have taken days in one that takes months. This kind of performance is a consequence of the targets imposed to local providers by central government (the regime in his words); these targets are focused on performing activities rather than on the purposes of the service. An activity can be the number of customer calls that are discharged within a certain time, regardless of whether this discharging meant satisfying the client’s needs or not. Following Deming's work Seddon argues for a statistical measurement of the system's capabilities to work out what the current configuration of resources permits the system to do for its customers rather than for the civil servants in central government.

He makes the very useful distinction between failure and value demand. The statistics he gives are frightening; most of the activity of civil servants is responding to failure and not adding value to the client's needs. Seddon's argument, following Toyota's experience, is that a focus on the value adding flow of the service is the essence of systemic thinking. For this he argues it is necessary to understand the customer's needs. For public services, perhaps differently to manufacturing activities, the variety of these needs is very large indeed and it is necessary to design a service that absorbs this variety rather than trying to constrain it through predefined processes. People suffer as a consequence of this predetermination; the service delivery takes too long, costs are too high and the available resources are squandered to the detriment of better services. The purpose should be offering services that match the customers' variety. It is essential to understand in depth these needs and organize the activities' flow in such a way that they match these requirements. And, in his view, the use of IT for these purposes has been counterproductive in recent time. Usually this technology has reinforced the operation of badly designed processes.

He is aware that changing the regime is almost impossible; the only option is dismantling it. The rules and legislation in place make it very difficult to alter the service delivery procedures in place. Service providers are torn between satisfying counterproductive targets and being assessed poorly by contrived inspections. The whole machinery for service provision is inadequate and squanders a huge amount of resources. In spite of these views he ends up the book offering a list of situations where the use of systemic thinking has produced significant improvements.

Though my overall assessment of the book is positive I think that it offers a superficial view of systems thinking and little methodological guidance to use it. This is paradoxical since throughout the book Seddon insists that the problem with the regime is that for policy implementation offers no methods beyond the dogmatic delusion of what he calls deliverology. For those being initiated in this way of thinking the book is useful but there are some issues that need further reflection:

-Centralisation-decentralisation; which structures make beneficial the sharing of resources? No doubt fragmentation is a risk when a service process is divided between front end and back end activities, but the issue is how to overcome this fragmentation at the same time of making possible the sharing of scarce and expert resources.

-How to absorb front end variety? Accepting variety face value is likely to overwhelm service providers. Service providers must find ways of limiting this variety without hindering the main purpose of the service. In the end there must be a trade off between accepting customers' unconstrained variety and restricting it with ingenuity to avoid being overwhelmed by its proliferation. Variety engineering is a key issue in service provision that should take into account purpose, resources and acceptable performance.

-relevance of IT in service delivery; no doubt there are multiple examples of a counterproductive use of ITs. However Seddon's advice to turn off IT changes to understand and design work as a system and to 'pull' the necessary IT when the new design is stable, makes apparent a lack of appreciation of the co-evolution of service processes and technology. Ingenuity in the design of services is deeply related to technological changes and new processes should take into account these new technologies. Politicians, experts and civil servant need this ingenuity badly in their own spaces of action.

Monday 2 March 2009

Enterprise's vulnerability

Beyond measures of achievement and potentialities (possibly emerging from business intelligence), organisational cybernetics is principally concerned with the ‘body’ of the enterprise. It is perfectly possible for an enterprise to be doing well (i.e. it is selling well its services, making profits and so forth) at the same time that a proper cybernetic study of its organisational structure makes apparent that its ‘body’ is not healthy. I have called this type of revision ‘second order auditing’; this is the auditing of the enterprise’s organisational processes, which is done using Beer’s Viable System Model and Espejo’s Viplan Method. Outcomes of this auditing may well be the diagnoses of over centralisation - thus making the enterprise’s businesses less flexible-, poor monitoring of these businesses - thus increasing chances of decentralised businesses failing without any warning (see previous blog)- and so forth. This kind of auditing has been done in hundreds of enterprises. It is through ‘second order auditing’ that I have proposed identity and structural archetypes of, shall we say, archetypes of enterprise’s vulnerability (see www.syncho.com).