Last Updated 14 May 2021

Viable System Model

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This paper is intended as study of the Viable System Model for better understanding. It deals with some of the basic concepts embodied in the model, the modeling process, and its use in practice in ITC Ltd. ITC’s transformation from cigarette to a conglomerate. Why we need Organizational Models We all interpret the world through models; these can be explicit, or tacit.

For all managers in all organizations, their ability to manage a situation or organization effectively is in direct proportion to the accuracy and relevance of the models they are using to understand it. By far the most common organizational model in use in management today is still the hierarchical model though it has various disadvantages. What it doesn’t model is any of the more fundamental things about the organization: what it is, what it does, how it does it, its processes, formal and informal structures, communications and information transfers, or decision making.

The VSM (Viable Systems Model) offers a more sophisticated alternative, one that can be used both for diagnosing existing organizations, and for designing new ones.  The viable systems model or VSM is a model of the organizational structure of any viable or autonomous system. A viable system is any system organized in such a way as to meet the demands of surviving in the changing environment. One of the prime features of systems that survive is that they are adaptable. The VSM expresses a model for a viable system, which is an bstracted cybernetic (regulation theory) description that is applicable to any organization that is a viable system and capable of autonomy. A viable system is composed of five interacting subsystems which may be mapped onto aspects of organizational structure. In broad terms Systems 1–3 are concerned with the 'here and now' of the organization's operations, System 4 is concerned with the 'there and then' – strategical responses to the effects of external, environmental and future demands on the organization. System 5 is concerned with balancing the 'here and now' and the 'there and then' to give policy directives which maintain the organization as a viable entity.

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  • System 1 (Operations) in a viable system contains several primary activities. Each System 1 primary activity is itself a viable system due to the recursive nature of systems as described above. These are concerned with performing a function that implements at least part of the key transformation of the organization.
  • System 2 (Coordination) represents the information channels and bodies that allow the primary activities in System 1 to communicate between each other and which allow System 3 to monitor and co-ordinate the activities within System 1.
  • System 3 (Operations Planning ; Control) represents the structures and controls that are put into place to establish the rules, resources, rights and responsibilities of System 1 and to provide an interface with Systems 4/5.
  • System 4 (Development Research and marketing) – The bodies that make up System 4 are responsible for looking outwards to the environment to monitor how the organization needs to adapt to remain viable.
  • System 5 (Decisions to maintain identity) - is responsible for policy decisions within the organization as a whole to balance demands from different parts of the organization and steer the organization as a whole.

According to the above descriptions, these systems can be organized into three groups reflecting the three management perspectives:

  • Operational Management (Systems 1,2,3)
  • Strategic Management (System 4)
  • Normative Management (System 5)

Viable Systems Model at Itc Limited

ITC was incorporated on August 24, 1910 under the name Imperial Tobacco Company of India Limited. In recognition of the Company's multi-business portfolio encompassing a wide range of businesses - Cigarettes & Tobacco, Hotels, Information Technology, Packaging, Paperboards & Specialty Papers, Agri-business, Foods, Lifestyle Retailing, Education & Stationery and Personal Care - the full stops in the Company's name were removed effective September 18, 2001. The Company now stands rechristened 'ITC Limited'.

The success of ITC lies in the fact that it has been able to adapt to the changing environment and market needs through searching more and more viable options for sustainable growth. Let us apply the VSM model in systematic fashion:  System 1 (Operations) in a viable system contains several primary activities. Though the first six decades of the Company's existence were primarily devoted to the growth and consolidation of the Cigarettes and Leaf Tobacco businesses, the Seventies witnessed the beginnings of a corporate transformation that ushered in momentous changes in the life of the Company.

It entered into the chosen portfolio of FMCG, Hotels, Paper, Paperboards & Packaging, Agro Business and Information Technology. These were chosen on the basis of internal capabilities, the emerging opportunities in these areas and confidence that ITC would be able to achieve leadership positions in these business segments.  System 2 (Coordination) ITC has a diverse portfolio of product offerings and proper coordination between them is necessary and it does take place even at the very basic level. E. g. ne of the primary products in its portfolio -- Aashirvaad Atta [wheat flour] -- is today a leader in its segment within a very short time since its launch. Its success is an example of the synergies that ITC derives from the diversity of its businesses. ITC's pioneering rural initiative, the e-Choupal network, enables cost effective sourcing of wheat but, more importantly, lends a competitive strength given the traceability of the commodity through identity-preserved procurement. This enables customized blending, which again is a strength honed from the practice of tobacco lending over the years, to support local tastes and preferences. This is a perfect example of how the coordination takes place in ITC Ltd.  System 3 (Operations Planning ; Control) Flowing from the philosophy and core principles, Corporate Governance in ITC takes place at three interlinked levels, namely –  Strategic supervision by the Board of Directors  Strategic management by the Corporate Management Committee  Executive management by the Divisional Chief Executive assisted by the Divisional Management Committee.

It is ITC's belief that the right balance between freedom of management and accountability to shareholders can be achieved by segregating strategic supervision from strategic and executive management. This 3-tier structure ensures that a. Strategic supervision (on behalf of the shareholders), being free from involvement in the task of strategic management of the Company, can be conducted by the Board with objectivity, thereby sharpening accountability of management. b.

Strategic management of the Company, uncluttered by the day-to-day tasks of executive management, remains focused and energised; and c. Executive management of the divisional business, free from collective strategic responsibilities for ITC as a whole, gets focused on enhancing the quality, efficiency and effectiveness of its business. ITC also benchmark the health of each business comprehensively across the criteria of Market Standing, Profitability and Internal Vitality.  System 4 (Development Research and marketing) – ITC is committed to delivering world-class products and services.

This requires a clear focus on continuously striving to create a higher value to customers by achieving excellence in all Company's operations. ITC always look out to know the customer demands and needs and work upon them. e. g. ITC's hotels business and its master chefs interact with millions of consumers throughout the year and are able to understand the nuances of regional and local tastes that delight the consumer palette. This knowledge is utilized by the foods business to deliver a superior and differentiated product. System 5 (Decisions to maintain identity) - ITC has developed core values in order to bring out the balance between demands of the organization as well as the demands of the customers. ITC's Core Values are aimed at developing a customer-focused, high-performance organization which creates value for all its stakeholders and these are:  Trusteeship , Customer Focus , Respect for People,Excellence, Innovation, Nation Orientation. It is clear from the above discussion that ITC follows the Viable Systems Model up to a great extent which is a reason for its sustenance in dynamic environment.

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