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

Tuesday, 10 February 2009

Financial Crisis and Organisation Structure

Financial Failure and Systemic Enquiries

The House of Commons and the ‘near’ collapse of two British Banks

This morning the recently resigned chairmen and chief executive officers of the Royal Bank of Scotland (RBS) and Halifax Bank of Scotland (HBOS) were grilled by members of the UK Parliament’s Treasury Committee. The four ex senior managers apologised for the turn of events and the fact that tax payers had to bail the banks out of the crises. The Committee’s Chairman stated that either the bank bosses were incompetent or systemic reasons were responsible for this turn of events. Since the track record of these senior managers were well known the first option was not credible, leaving the option of systemic failures as the main reason. Also, much was made of the fact that the two chairmen were not bankers at the time of their appointments and that of the main four UK banking institutions only the two under scrutiny had had the tax payers bailing them out.

Unfortunately there was nothing in the questions and the evidence given that suggested that either politicians or managers understood the nature of systemic failures. They all stated that the events could not have been anticipated; things happened too quickly and they could only recognise their errors with the benefit of hindsight. A strong line of questioning was along their apparent inability to assess the risks of the products they were selling; did they understand these risks? Where they up to the complexity of the products they were offering? What struck me were the difficulties that the Committee members had to articulate the necessary questions to unearth the systemic aspects underpinning the managers’ failures. Both politicians and policy-makers don’t have an adequate training to visualise the structural underpinnings of their decisions. It is not difficult to appreciate that their judgments are supported by far more resources than those of lay citizens but they seem to be more at ease talking about concrete events and situations than to scrutinize the structures supporting their judgments. It became clear that the RBS had significant banking activities in the USA, and worldwide they had more than 25000 employees outside the UK, yet no question was directed to establish the quality of their knowledge of the USA subsidiaries; how well had these subsidiaries recognised the depth and magnitude of the sub-prime lending problem? Were they receiving good quality information about the situation of sub-prime mortgages as the situation was unfolding in the USA? Did they have adequate capacity in Headquarters to monitor the performance of these companies? Did RBS have mechanisms to cross check their experts’ assessment of the evolution of the markets with the results reported by their subsidiaries? These and many more systemic questions could have been asked but they did not emerge at all.

The problem was not that the RBS’s Chairman was an ex-pharmaceutical industry boss; in systemic terms the problem was that he and the other people in the bank’s Board did not share a good model of the organisational structure they were responsible for. This structure was responsible for inadequate distributed risk assessments that finally underpinned their judgments. Unfortunately, they and we (tax payers) are paying for the consequences of these bad assessments. The Chairman and the CEO could not know the details of the businesses they were running; their better chance for success was to improve their judgments by using the bank’s thousands of the highly paid executives and employees to the best of their abilities. Hopefully the effect of these structures should be better than adding or cancelling the individual abilities of these people; indeed this is what organisation structures are for. Competent people, supported by effective structural mechanisms, should be responsible for submitting good policy options for the consideration of policy-makers. Of course risks can never be eliminated but they can be ameliorated, in this case, by the collective work of thousands sharing the benefits of an unlighted leadership that enables their communications to the best of the stakeholders’ interests (not to the benefit of their own interests!). From this proposition many questions emerge that could provide light about why things went wrong and how things can go better in the future. Somehow I’m suggesting that both MPs and senior managers have much to learn about this kind of systemic inquiry.

Thursday, 5 February 2009


A novel about Cybersyn

SYNCO (2008) by Jorge Baradit Ediciones B, Santiago de Chile

I’ve just been in Chile where I found the novel SYNCO. It was one of the local literary events of the end of the year. The novel is about the CyberSyn Project that took place in Chile during the Salvador Allende’s government in the early 1970s. I was the operations manager of that project and responsible for the project’s local name: SYNCO. The name came about as a composition of the word Synergy and the Spanish word cinco (‘five’ systems of Stafford Beer’s Viable System Model). Naturally I bought a copy and read it.

It starts with an introduction to the CyberSyn Project, including a photograph of the Operations Room (you can see it in my paper ‘CyberSyn and the re-construction of a holistic nature’, offered as a download in this website: The project’s objective is defined as “...converting Chile in the first Cybernetic State in history, underpinned by a network which anticipated in decades the Internet as we know it”

It is a ‘retro-futuristic’ novel that takes place in 1979. Its assumption is that the coup of 11th September 1973 did not succeed and that the Allende’s government continued with the support of General Augusto Pinochet. In this note I don’t want to develop its argument but to comment the extent to which it fails conveying what a Cybernetic State would look like.

Baradit portrays Chile after the six years of the attempted coup as a neo-fascist State, dominated by the SYNCO machine, which controls all aspects of private and public lives. One of the protagonists who is trying to counteract the state’s drift towards a technocratic rightwing society, says: “SYNCO, a god made of wires and a shared mind, a beehive, will establish the first technological dynasty in history...But we are building up an army of code breaking children. We have educated them in the secrets of SYNCO ... a battalion of mind focused soldiers which will face up with their keyboards a new type of war for which they (the government) are not prepared”. Furthermore, some else states in relation to the government’s socio-economic direction that “The third way is an illusion” produced by a network of black covered cooper wires. Overall it appears that Baradit accepts as the lesser evil for Chile a successful military coup; the alternative was too awful to contemplate.

It is sad that this popularisation of the SYNCO project appears to give credence to the fears expressed by the right wing political press just before the coup in 1973. It re-enforces the view that information and communication technologies could only have led Chile to a neo-fascist, totalitarian outcome. This is a trivialisation of the argument that betrays lack of grasp of organisational cybernetics as a science of effective governance and not of autocratic control.

In my paper ‘CyberSyn and the re-construction of a holistic nature’, which as I said above you can down load from this website I say:
“Did the CyberSyn project succeed in re-constructing the nature of the Chilean society? This project, an invention of Stafford Beer, was an alternative to the extremes of running a centralised planning system or an unrestricted free market. This third way wanted to favour governance for social cohesion and distribution of power.”

Furthermore I say:
“CyberSyn was a project ahead of its time. Its creation was visionary; however its intended implementation did not have requisite variety. The necessary social and organisational contexts to re-construct the nature of social relationships did not exist; however desirable it might have been to provide information in real-time and by exception, the necessary relationships for cohesion and adaptation had not evolved enough to reinforce effective autonomous action throughout the social economy. A mooted point is whether a longer period of implementation, uninterrupted by the coup d’├ętat of September 1973, would have supported this requisite learning. Some participants in the project had an appreciation of the need to embody these relationships in the social fabric of the economy but collectively most of us did not see CyberSyn beyond being a powerful theoretical framework and our practice was biased towards a technical implementation at the expense of the values of building up a truly autonomous decentralised industry and furthermore an inclusive democracy. In conclusion, my view is that CyberSyn did not succeed in reconstructing a more humane and just social nature in the Chile of the 1970s.”

However, the safeguard against any technocratic tendency was precisely in the very implementation of CyberSyn, which required a social structure based on autonomy and coordination to make its tools viable. Without a culture of autonomy and resources for coordination these tools were too weak to have any social impact. The control against autocratic tendencies was intrinsic to the design itself. Of course politically it was always possible to use information technologies for coercive purposes however that would have been a different project, certainly not SYNCO; not only its political and conceptual underpinnings were those of a democratic society, but its tools were orders of magnitude less resource consuming than those required for centralised control. With the benefit of hindsight I believe that had the 1973 coup failed, and should the people and its socialist governments had supported the 3rd way offered by the CyberSyn project, Chile would have experienced years of painful development of which it would have emerged as a more equal and just society.