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1 System Viability of Organizations and The SYSTEM VIABILITY OF ORGANIZATIONS AND THE AETIOLOGY OF ORGANIZATIONAL CRISIS A Quantitative Assessment of Stafford Beer’s Viable System Model SYSTEMISCHE LEVENSVATBAARHEID VAN ORGANISATIES EN DE ETIOLOGIE VAN ORGANISATIE CRISES Een kwantitatieve toets van Stafford Beers 'Viable System Model' (met een samenvatting in het Nederlands) Proefschrift ter verkrijging van de graad van doctor aan de Universiteit Utrecht op gezag van de rector magnificus, prof.dr. G.J. van der Zwaan, ingevolge het besluit van het college voor promoties in het openbaar te verdedigen op maandag 20 november 2017 des ochtends te 10.30 uur door Michael Dominik PFIFFNER geboren op 9 oktober 1963 te Zürich, Zwitserland 1 Promotoren: Prof. dr. S.G.L. Schruijer Prof. dr. J.P.P.E.F. Boselie 2 3 Committee: Prof. dr. M. van Bottenburg Prof. dr. A.J. Meijer Prof. dr. E.F. Loos Prof. dr. P. Curşeu Prof. dr. A. Wierdsma 4 5 1 Abstract 1.1 Abstract in English Michael Dominik Pfiffner System Viability of Organizations and the Aetiology of Organizational Crisis A Test of Stafford Beer’s Viable System Model and a Quantitative As- sessment of the System Viability of Organizations for the Understanding and Pre-Emption of Organizational Crisis Keywords: System Viability, Organizational Crisis, Failure, Manage- ment Cybernetics, Early Recognition, Prevention, VSM Subject of this dissertation is the aetiology of crisis processes which place organizations under existential threats and which often cause organiza- tional demise and bankruptcy. To date, research on organizational crises (OC) has not succeeded in identifying the generic grounds for these detri- mental processes in organizations. Instead, by referring to the complexity and to the assumed multi-causality of the phenomenon, research has contin- ued to provide only either general observations or deep singular analyses of often prominent crisis cases, which provide no generalizable insights. To help practice fight OC, other researchers have produced lengthy lists of crisis symptoms or developed multi-theory approaches finding, for example, exter- nal shocks responsible for OC, whereas others, using different theories, found the opposite to be the real origin of OC. Dozens of crisis stage models or crisis archetypes have been suggested to spur understanding of the phe- nomenon. However, from all these findings no sound idea of what governs the aetiology of OC could be derived; on the contrary, all too often the find- ings were conflicting or incommensurable. A minimal consensus can be found in literature about some basic characteristics of slowly developing OC of non-catastrophic, non-sudden origin, which is the research object of this dissertation. The most often men- i tioned traits of such OC are: a) Increasing complexity and, at the same time, decreasing means of remedy in the course of OC. b) Ineffectiveness or ad- verse effectiveness of conventional management measures towards OC. c) Existential threat to the whole organization as a consequence of OC. d) Often very long incubation time with locally triggered or random place of OC out- break. e) Unclear or seemingly multiple OC origins. It turns out that opaqueness and increasing complexity are two com- monly reported properties which make OC both difficult to understand and to counteract as a manager, and also hard to explore theoretically. Many disciplinary approaches to explain and counter OC exist. Mar- keting, finance, organization, production, HR or IT have functional explana- tions as to why organizations would fail. However, explanations such as too small market share, too high interest cost, inefficient work processes, insuffi- cient manpower or obsolete programming are superficial observations which neglect the underlying shortcomings of OC or indicate problems only after OC has already damaged vital parts of organizations. Complex, multifaceted and non-transparent phenomena are the re- search object of systems sciences, which deal with sets of invariant rules that are at work in systems and which are decisive for the behaviour of these sys- tems. Because OC are complex, multifaceted and non-transparent phenom- ena, this thesis looks at OC through the lens of system science. Using a sys- tems, or more precisely, a management cybernetic theory called the Viable System Model (VSM) to address those issues, this work has overcome ob- stacles, observed in earlier research. The VSM is a topological model of the invariant control structure of any viable system; independent of an organization’s individual design. It de- fines the necessary and sufficient conditions for organizational viability, a fact that makes the VSM interesting for OC research: If the VSM defines the nec- essary and sufficient conditions for organizational viability and if OC is a pro- cess which threatens an organization’s viability, then OC must infringe these conditions and, therefore, the VSM conditions can be used to understand and predict OC. ii To test this hypothesis the viability conditions of the VSM have been operationalized and translated into a questionnaire. For that purpose, the situation vignette method has been developed, defining idealized control sit- uations and allowing multiple issues of the rich VSM to be evaluated within a limited number of situation vignettes or questions. With it, the system viability of two groups of organizations has been retrospectively evaluated: one group of 74 organizations that experienced existential crises and one group of 61 institutions that did not. To avoid key informant bias effects due to the in- volvement of management teams which were responsible for the evaluated organizations, the evaluation has been conducted by independent third party experts with a controlled sound knowledge of these organizations. To take into account the many interconnected and dependent sys- tems, sub-systems and principles of the VSM, a partial least square structural equation modelling (PLS-SEM) approach has been used to establish statisti- cally the causal relationship between the availability of the viability conditions of the VSM and the prevalence of OC in the sample. On the basis of the above 135 cases, a significant and strong connection between system viabil- ity based on the VSM characteristics and the occurrence of organizational crises was found. This means that the null hypothesis of this thesis, that the phenome- non of organizational crisis cannot be explained by the system viability of or- ganizations, was rejected or conversely: system viability of organizations is strongly connected with the occurrence of OC. With these findings, the con- tribution of this dissertation is threefold, it provides a quantitatively under- pinned increase in knowledge about the aetiology of organizational crises, a qualitative framework coded in plain language for the early recognition and prevention of organizational crises in practice and a quantitative test of the Viable System Models substantial claims. For both practitioners and researchers, the findings of this dissertation provide useful starting points on how to pre-empt and further explore OC in the endeavour to protect valuable resources and achievements with busi- nesses and public authorities. iii iv 1.2 Abstract in Dutch Levensvatbaarheid van het systeem van organisaties en de etiologie van crises in organisaties Een test van Stafford Beers 'Viable System Model' (VSM) en een kwantitatieve evaluatie van de levensvatbaarheid van het systeem van organisaties met het oog op de preventie en de vroegtijdige detectie van crises in organisaties Sleutelwoorden: levensvatbaarheid systeem, crises in organisaties, mislukking, managementcybernetica, vroegtijdige onderkenning, preventie, VSM Het onderwerp van deze dissertatie is de etiologie van crisisprocessen die een bedreiging vormen voor het voortbestaan van organisaties en die deze vaak ten onder of failliet doen gaan. Tot op vandaag is er nog geen enkel onderzoek in geslaagd de algemene oorzaken te achterhalen voor deze negatieve processen binnen organisaties. Omwille van de complexiteit en de aanname dat er verscheidene factoren verantwoordelijk zijn voor dit fenomeen, blijft onderzoek steeds opnieuw ofwel algemene opmerkingen, ofwel zeer specifieke analyses van opmerkelijke gevallen naar voren schuiven die geen generaliseerbaar inzicht bieden. Om deze crises in organisaties te helpen vermijden, hebben onderzoekers uitgebreide lijsten van crisissymptomen opgesteld of verscheidene theorieën ontwikkeld die bijvoorbeeld externe schokken verantwoordelijk stellen voor deze crises. Andere onderzoekers daarentegen maken gebruik van andere theorieën om net het tegenovergestelde aan te halen als oorzaak van crises binnen organisaties. Er werden al tientallen crisismodellen of crisisarchetypes uitgewerkt om een beter inzicht in het fenomeen te krijgen. Maar in al deze studies werd nooit verwezen naar wat aan de bron kan liggen van deze crises; de resultaten waren daarentegen vaak tegenstrijdig of onderling onvergelijkbaar. De wetenschappelijke literatuur lijkt een minimale consensus te hebben bereikt over bepaalde basiskenmerken van traag ontwikkelende v crises in organisaties met een niet-catastrofale, niet-plotselinge oorsprong. Dit type crises maken het onderwerp uit van deze dissertatie. De meest voorkomende eigenschap van deze crises zijn a) een verhoogde complexiteit en tegelijkertijd, een steeds moeilijker wordende oplossing gedurende het verloop van de crisis. b) ondoeltreffendheid of gebrekkige doeltreffendheid van de conventionele managementmaatregelen
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