Cybernetics and the Market in Times of COVID-19

The present chaos and confusion caused by the spread of the COVID-19 virus has, if nothing else, made us all aware of the lack of preparedness of many countries, and indeed the world as a whole, for such a crisis. Indeed, it has caused economic turmoil, with the international supply chain suffering badly as a result. The confusion caused by panic buying as well as regional and national deficiencies in terms of the provision of many essential services, coupled with the significant variations in exposure to the virus in various countries, would suggest a severe fragmentation in terms of the level of regional and, for that matter, national responses to the challenges faced.

This regional set of fragmentations and overall disparities in preparedness could, in reality, have been avoided due to the existence of a concept called cybernetics. The term ”cybernetics” was invented by the American scientist and mathematician Norbert Wiener in 1948, when he formulated the concept which investigated and examined neural networks in animals and machines. The concept extended to what was later developed by an eminent British expert in cybernetics and Professor of Business at Manchester University Business School, Stafford Beer. Stafford Beer further developed the concept of cybernetics in a business and management context, introducing the Viable Systems Model (VSM).

A viable system is composed of five interacting subsystems which may be mapped onto aspects of organisational structure. In broad terms, Systems 1–3 are concerned with the ‘here and now’ of the organisation’s operations, System 4 is concerned with the ‘there and then’, i.e. strategic responses to the effects of external, environmental and future demands on the organisation. System 5 is concerned with balancing the ‘here and now’ and the ‘there and then’ to give policy directives which maintain the organisation as a viable entity.

• System 1 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 (individual Departmental functions).
• System 2 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. Represents the scheduling function of shared resources to be used by System 1 (internal electronic database systems, e-mails etc.).
• System 3 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. This represents the big picture view of the processes inside of System 1 (Enterprise Resource Planning e.g. SAP, Oracle). It incorporates System3*, which is the element of internal and external auditing and monitoring of the corporate systems structure, and which in many ways also relates to the Six Sigma principle of DMAIC (Define, Measure, Analyze, Implement and Control).
• System 4 is made up of bodies that are responsible for looking outwards to the environment to monitor how the organization needs to adapt to remain viable (e.g. the World Trade Organization, the Trade Facilitation Agreement, ISO, AEO etc.).
• System 5 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 (Overall Management, use of ERP etc.), including overall company strategy.

In this case, cybernetics is the study of how organizations control themselves and communicate with each other. It is also about having a goal and taking action to achieve that goal.

On this basis, the term “Viable” means to be capable of independent existence and implies both maintaining internal stability and adaptation to a changing environment. In this respect, it is far more important than profitability. “Internal stability” and “adaptation” can be in conflict, particularly if the relevant environment is changing rapidly, so the viable system model (VSM) is about maintaining a balance between the two such that the system is able to survive.

The principle of Internal Stability vs. Adaptation is as follows:

1. We do nothing, so we get left behind (not an option);
2. We change radically according to external requirements, but cannot cope with the sudden change, resulting in chaos and collapse;
3. We manage change, introducing it in stages to fit in with our overall long-term aspirations and objectives;
4. We support this change with extensive training and awareness, as well as the implementation of new systems to account for external changes;
5. We introduce Design Systems software, and enable it to function efficiently by correctly and efficiently managing our resources;
6. We use the Viable Systems Model (VSM), using and developing the 5-System approach.

Much of this strategy depends on two types of feedback, namely Negative and Positive. If, for example, we examine a particular situation and discover deficiencies, this is seen as Negative Feedback, in that the result is far from acceptable. Negative feedback can also occur if we attempt to introduce a specific strategy, but the outcome is unfavorable. We are unlikely to maintain that strategy and will instead seek another. In the case of deficiencies, we will seek to implement a strategy that will rectify the situation. If, however, we encounter Positive Feedback, this means that the strategy implemented was successful and that therefore we can continue with this approach, as it will lead to greater efficiency and satisfaction all round.    

Using the structures detailed above, the cybernetic synergy principle using the Viable System Model can be used to determine where the deficiencies in a specific sector or element of an organization, especially within the supply chain, are in evidence, which would be seen as negative feedback, and then address the deficiencies by transferring resources which are in excess elsewhere to the areas of deficiency, or enhancing existing resources in a more efficient way, but this time using state-of-the-art facilities based on ERP systems, as well as strictly-controlled auditing and monitoring systems. This would in turn address the deficiencies in the VSM, thus enabling organizations to adapt to crisis and change, consequently generating positive feedback, and hence equip their structures and systems to cope with any future emergencies based on anticipation of externalities and internal strategies by means of communication and coordination. The VSM would thence be used to determine the areas of weakness in an organization and address these as soon as they were perceived.

Resources could thus be better managed by being transferred from one location to another depending upon the regional need, or by being better managed where they do exist, and thus resolve any deficiency as it arose. It would also address logistics issues concerning all major forms of storage and transport, thus avoiding major challenges concerning the supply chain as a whole. Any commercial entity, from supermarkets to production facilities, could ensure that supplies were available from whatever source for immediate delivery according to need, and that transport could be arranged quickly to address these challenges. This approach generates efficiency within the supply chain, and also generates cost-effective communication and activity, thus promoting overall efficiency and hence cost-effectiveness and competitiveness within the market. In turn, this in itself leads to market dynamism and the prevalence of free-market forces in driving efficiency and competitiveness, as well as economic growth. It could indeed be argued that had a cybernetic approach been taken by all the major relevant stakeholders prior to the present crisis, much of the crisis itself could have been avoided.

Friedrich Hayek proposed certain elements of cybernetics as a tool for efficiency-based management. His studies on the free market mention cybernetics as a discipline that could help economists understand the “self-organizing or self-generating systems” called markets, especially on the basis of self-perpetuation. Being a “complex phenomena”, the best way to examine the functioning of the market is by using the feedback mechanism as described above, explained by cybernetic theorists, based on market demands. That way, economists could make “pattern predictions” and could ensure anticipation of market needs and hence the preparedness of any organization to address these needs based on effective communication and structure. In the present global economic crisis, companies need to ensure that they address all the needs of the market by way of feedback and control their internal structures and strategies accordingly to guarantee reliability, efficiency, quality and value of products and services at all times.