An Enterprise Complexity Model: Variety Engineering and Dynamic Capabilities

Introduction

How is it possible for an enterprise to perform effectively, at least as well as similar enterprises, under increasing social, ecological and economic demands? How does it achieve viability in these circumstances? These are questions for which the VSM gives powerful answers.

The digital economy and related information and communication technologies (ICTs) share with the VSM their focus on complexity, that is, on the on number of possible states or variety of a situation¹. The digital economy is grounded in computers with a large capacity to map, communicate and respond to all kinds of situational states. Today, more than ever before, public, private and mixed enterprises can recognise and manage an individual’s variety rather than dealing with aggregations and averages. Services can be tailored to specific and individual needs; often services can be managed by customers adding to them flexibility and convenience. Research can use distributed computer networks to increase in orders of magnitude its computational capabilities. To control resources and technology the economy is relaying more and more on distribution and inclusion rather than on centralisation and exclusion. The VSM provides heuristics to model the regulation of this huge number of possible states; the performance of an enterprise is defined by its dynamic capabilities to respond effectively to relevant states in the environment, at least at a level similar or better than current practice. The ECM is precisely a model of the structural, relational and communicational strategies for an enterprise to manage the complexity of its environment. Examples of this management and its connections with the digital economy are given throughout this paper.

The opportunities and threats that enterprises are experiencing in their surroundings suggest that they need to invent and develop ingenious organisational forms to match these challenges. This paper offers methodological support for the on-going re-invention of new organisational forms to bridge environmental demands. This is what I call here the Viplan Methodology, which uses ECMs as ingenious forms to bridge the enterprise-environment complexity gap². ECMs are helpful to develop the enterprise’s dynamic capabilities³, and offer a heuristic to create, maintain and develop innovative organisational forms through the application of ICTs.

The VSM offers a template to map an enterprise’s resources and relationships according to their systemic purposes. The enterprise is understood as an autonomous system, striving for its viability in a complex environment. For this it needs capabilities to create, regulate and produce products and services for environmental agents. The VSM postulates that for these purposes the enterprise needs five systemic functions; policy, intelligence, cohesion, coordination and implementation (Espejo 2003, Espejo & Reyes, 2011). All the resources producing an enterprise have one or more of these systemic functions, or in other words, all resources can be mapped onto one or more of these systemic functions.

The Viplan Methodology uses the Viplan Method to diagnose and design an enterprise’s structure. In its diagnostic mode, Viplan is a method to assess whether this structure is adequate or not for its ascribed purposes. In its design mode it works out, from its purposes, the configuration of resources and relationships that are necessary to produce an effective structure. In this paper I use this latter mode to model the dynamic adaptation of an existing enterprise to a changing environment. The main construct for this purpose is the enterprise complexity model (ECM) within the framework of the Viplan Methodology.

In this paper I first introduce briefly the Viplan Method and the VSM. These are topics that I have discussed at length in other publications. This introduction is followed by a discussion of the network economy from the perspective of the Viplan Methodology. The third and final section of this paper offers a technical discussion of Enterprise Complexity Models.