Viable System Model - Measuring Performance

Measuring Performance

In "Brain..." (p. 163) Beer describes a triple vector to characterize activity in a System 1. The components are:

actuality: "What we are managing to do now, with existing resources, under existing constraints."

capability: "This is what we could be doing (still right now) with existing resources, under existing constraints, if we really worked at it."

potentiality: "This is what we ought to be doing by developing our resources and removing constraints, although still operating within the bounds of what is already known to be feasible."

Beer adds "It would help a lot to fix these definitions clearly in the mind." System 4's job is essentially to realize potential.

He then defines productivity: is the ratio of actuality and capability;

latency: is the ratio of capability and potentiality;

performance: is the ratio of actuality and potentiality, and also the product of latency and productivity.

Consider the management of a process with cash earnings or savings for a company or government: potentially £100,000 but aiming to make £ 60,000. Actually sales, savings or taxes of £40,000 are realized.

So potentiality = £100,000; capability = £60,000; actuality = £40,000.

Thus latency = 60/100 = 0.6;

productivity = 40/60 = 0.67;

performance = 0.6 × 0.67 = 0.4 (or actuality/potential 40/100).

These methods (also known as normalisations) can be similarly applied in general e.g. to hours worked in the performance of tasks or products in a production process of some kind.

When actuality deviates from capability, because someone did something well or something badly, an algedonic alert is sent to management. If corrective action, adoption of a good technique or correction of an error, is not taken in a timely manner the alert is escalated. Because the criteria are applied in an ordered hierarchy the management itself need not be, but the routine response functions must be ordered to reflect best known heuristic practice. These heuristics are constantly monitored for improvement by the organization's System 4s.

Pay structures reflect these constraints on performance when capability or potential is realized with, for example, productivity bonuses, stakeholder agreements and intellectual property rights.