Completing the Internal BalanceVSM Design
Ensure stability through a combination of horizontal synchronization and the necessary minimum of centralized management
11.1 Maximize Autonomy
Make the Operational units as autonomous as possible.
11.2 Negotiate Resources
Negotiate resource allocation between System 3 and each Operational unit.
11.3 Adjust Environments
Change the environments with which each Operational unit is involved if improvements can be made.
11.4 Optimize the Flow
Change the way goods and information flow between the Operational units if overall efficiency can be improved.
11.5 Upgrade Information Systems
Make your information systems capable of producing thorough and up-to-date information.
11.6 Review System two and three capabilities
Following these changes, consider your existing Systems 2 and 3 and see if they now have the capabilities to deal with the entire complex of Operational units. This will involve both making the relevant decisions and making sure they are implemented.
11.7 Enhance missing capabilities
Increase the capabilities of Systems 2 and 3 to complete the balancing act.
Information Systems: The VSM approach
If you look at the Inside and Now of your VSM diagram there are several areas in which information is crucial to good design:
The Operational units must be accountable – they must find measures of what they do and make sure the appropriate information gets to System 3.
System 3* does audits and surveys – it is an information service to System 3, looking at whatever is of relevance.
System 3 must have a thorough model of all that it needs to know about the goings-on within the entire complex of interacting Operational units. Otherwise, it will be making decisions in ignorance.
An information system must be capable of generating alerting signals so that the organization can find out that something has gone badly wrong as soon as it happens. These signals are referred to as “algedonics”.
System 4 is charged with adapting to environmental change. It will need information about the external environment so it can produce strategies. It will also need a good model of the internal capabilities so it knows what tools it has at its disposal.
All of these factors require thorough information systems.
Traditionally information systems within a business are primarily concerned with financial information. They generally involve historical figures, so that after the monthly figures are produced someone may say “We have just realized that the business lost money last month because of something that happened in Factory 27” Which is, of course, too late.
The other aspect of traditional information systems which is superseded in VSM theory is the production of huge printouts from a database, most of which are never used.
Central to the VSM approach is the production of only what is important. If information says “All seems to be going as usual” then nothing needs to be done. Consequently, there is no point in printing the report.
The information systems used in the VSM are fundamentally different from traditional systems in that:
- they are based upon performance indicators which measure whatever is important within each Operational unit, and not just financial information.
- they are based upon daily measurement so that problems can be identified on the same day.
Closing the Loop
The overall principle is clear – closed loops work and open loops don’t.
We will see that it is not enough to close the loop – it must be closed also promptly to ensured adequate reaction times.
Important Aspects of an Information System
1. Performance Indicators
Negotiations are needed between the department in question and whoever is responsible for the allocation of resources. (Remember this is also designing the accountability systems which complete the resource-bargain loop between Systems 1 and 3).
The question is “What numbers do I regularly quote when I’m talking about how well the day has gone?” For example “Only three tonnes of muesli all afternoon.” or “What a good day! I completed four pages of the ledger.”
These indicators need to satisfy both the department and the resource allocator so that they give a complete picture.
It will then be the responsibility of the department to measure and plot them every day.
Some variation will be inevitable. It may take some time to establish what an algedonic actually is, e.g. 5% variation in productivity is fine as long as the variations even out. A continuous decline for 4 days is unacceptable and constitutes an algedonic. A 10% variation needs to be examined. And so on.
The responsiveness of the algedonic channel has to be established, or it may churn out algedonics every time someone sneezes.
3. Reaction Time
Each indicator must be studied individually. You must then decide how long it should take to deal with problems, and how long a problem can be permitted to continue until the viability of the whole co-operative is at risk.
So … you have 5 days to deal with wastage problems, 10 days to get out-of-stock back to acceptable levels, and so on.
These horizons must be agreed upon in advance, as when a crisis hits the system, the framework for dealing with it must be already established.
4. Loss of Autonomy
Assuming an indicator becomes unacceptable and continues at that level beyond the pre-agreed time, then the outer/higher unit gets notified, and that department loses its autonomy.
The nature of this loss should again be designed. It may involve a complete analysis of the problem, or the appointment of an agreed trouble-shooter or whatever.
But again, this should be agreed in advance.