Homeostasis
The Forgotten Enabler of Business Models
Gil Regev
1,2
, Olivier Hayard
2
and Alain Wegmann
1
1
Ecole Polytechnique Fédérale de Lausanne (EPFL), School of Com-puter and Communication Sciences,
CH-1015 Lausanne, Switzerland
2
Itecor, Av. Paul Cérésole 24, cp 568, CH-1800 Vevey 1, Switzerland
Keywords: Business Modelling, Survival, Systems, Identity, Homeostasis, Entropy, Negentropy.
Abstract: Business modelling methods most often model an organization’s value provision to its customers followed
by the activities and structure necessary to deliver this value. These activities and structure are seen as
infinitely malleable; they can be specified and engineered at will. This is hardly in line with what even
laymen can observe of organizations, that they are not easy to change and that their behaviour often is not
directly centred on providing value to customers. We propose an alternative view in which organizations
exist by maintaining stable states that correspond to their identity. We analyse how these states are
maintained through homeostasis, the maintenance of ones identity. Homeostasis helps to explain both the
inability of organizations to provide maximum value to their customers and their reluctance to change. From
this point of view, resistance to change is not something to fight or to ignore but an essential force behind
organizational behaviour that can be built upon for creating adequate strategies.
1 INTRODUCTION
Business modelling refers to the description of
organizations for the purpose of understanding their
informational needs. The premise of business
modelling is that IT needs to support the
organization and it is therefore crucial to fully
understand it (Shishkov, 2011). Business modelling
often begins by modelling the business processes of
the organization and proceeds down the hierarchy to
the way these processes are supported by the IT. In
this view, a business model is a description, as
complete as possible, of some part of the
organization that needs IT support.
Business modelling also refers to the modelling
of organizational strategy through initiatives such as
Service Science (Spohrer and Riecken, 2006) and
frameworks such as e
3
value (Gordijn and
Akkermans, 2003) and the Business Model
Ontology (Osterwalder and Pigneur, 2010). A
business model in these later frameworks describes
how a company provides and captures value
(Osterwalder and Pigneur, 2010). In this paper, we
will refer to business modelling as the description of
the complete organization, including its business
strategy.
The strategy formulation of business modelling
seems to be the direct product of the two leading
schools of strategic thinking (Design and
positioning) as viewed by Mintzberg et al. (1998).
Just like the methods inherited from these three
schools, business modelling dissociates strategy
formulation from implementation. Implementation,
it seems, is straightforward. If the strategists can
define winning business models, the company can
surely implement them. Also, strategic business
modelling considers that organizations exist by
maximizing value to customers and capturing part of
this value. This view glosses over the everyday
observation that organizations define their own rules
that they consider good enough for their customers.
Maximizing value for customers is not apparent in
even the most successful commercial companies.
When describing the operational part of Business
modelling, the models mostly contain roles
processes, business rules, IT systems etc. There is no
description of the mechanisms that maintain the
organization in place. Business modelling does not
address questions such as how come the
organization exists and what is its capacity for
change. Business modelling is all about change in
the way the organization does business today. If
13
Regev G., Hayard O. and Wegmann A.
Homeostasis - The Forgotten Enabler of Business Models.
DOI: 10.5220/0004460700130023
In Proceedings of the Second International Symposium on Business Modeling and Software Design (BMSD 2012), pages 13-23
ISBN: 978-989-8565-26-6
Copyright
c
 2012 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved

there were no need to change, it would mean that
whatever the organization is doing right now is
working and therefore there is no need for a new
business model. Implementing a new business model
is not an easy change and in most organizations it
either fails or is accompanied by years of upheaval.
Or as Michael Hammer, who coined the term
Business Process Reengineering (BPR) in the late
1980s, has subsequently said reengineering
transformed (Hammer, 1996): “organizations to the
point where they were scarcely recognizable.” or in
other words “it saved companies by destroying
them.”
This is because most of the times companies, just
like any organization survive not through radical
change but by closely controlling change.
In this paper, we take the challenge of explaining
an essential ingredient of organizational survival
called homeostasis. Homeostasis was developed in
the field of Physiology by Walter Cannon (Weinberg
and Weinberg, 1988) but has such a broad
description that it readily useful for describing the
way organizations survive in a changing
environment. Homeostasis, at its core, is a struggle
against change. It therefore provides a good basis for
explaining why new business models often fail.
Because it is at the core of what the organization is,
taking it into consideration will create much more
accurate business models.
In Section 2 we give a few examples drawn from
everyday life and from published cases, such as
Apple, to show the problem of strategy,
organizational culture and customer value. In
Section 3 we provide an overview of business
modelling. In Section 4 we explain the fundamentals
of maintaining identity and negative entropy. In
section 5 we explain the concept of Homeostasis. In
Section 6 we describe the practical aspects of
thinking in terms of Homeostasis.
2 A FEW BUSINESS EXAMPLES
Whereas the focus of business modelling is to
understand what value the business provides to its
customers and how it provides it, there are many
examples where this value is not readily apparent.
These examples do not belong to failed companies
but to all existing companies. We provide a few
examples to illustrate this point.
Apple’s Strategic Constancy
Apple is in the enviable position of having created a
host of products and services that customers find
very valuable, which allows it to charge a premium
price.
But, as much as competitors try to imitate
Apple’s business model, they are often unable to
replicate the same products and services. This, we
believe, is explained by Katzenbach (2012) as Jobs
ability in understanding the role of culture in
sustained strategic capabilities. Jobs, Isaacson
(2011) says, was interested mostly in creating “an
enduring company.” It is more difficult to create an
enduring company entrenched in culture than to
create business models that imitate Apple’s.
However, without the culture, the business models
have little chance of succeeding, as can be seen in
HP’s recent experience with the TouchPad.
Apple’s endurance can be seen in many aspects
of its culture. For example, the three principles that
to this day guide Apple’s Marketing Philosophy
were written at its very beginning by Mike Markkula
who was brought in by Steve Jobs (Isaacson, 2011),
These three principles are (Isaacson, 2011): (a)
Understanding customer needs better than other
companies by establishing an intimate relationship
with their feelings. (b) Focus on what is important
and eliminating what is not. (c) Presenting Apple’s
products professionally and creatively. Isaacson
(2011) says that these principles shaped Jobs’s
approach to business ever since.
After he was ousted from the company in 1985,
these three principles held on for a while but slowly
fizzled with Apple producing an ever-larger number
of products with lower appeal to customers and less
attention to their presentation and packaging.
When Jobs returned to Apple in 1997, he
recreated its culture by various measures, such as
(Isaacson, 2011): bringing back previous employees,
creating incentives for keeping trusted employees,
replacing Apple’s board, and removing all projects
that he estimated as not focused.
The quality Jobs built into the iMac, MacBook,
iPod, iPhone and iPad is in a direct line with the
quality he built into the original Macintosh. Like the
original Macintosh, all these products are physical
sealed so that only Apple can open them. In most of
these products, customers cannot even replace the
batteries. Replacing batteries in Notebooks, MP3
players and smartphones is a standard and highly
valuable feature, as batteries tend to fail with time.
An iPhone with a dead battery can only be returned
to the Apple for replacement, at a much higher cost
and delay than it would be for replacing a battery in
a Nokia smartphone. An evaluation of customers’
desires, will most probably list the simple and low
Second International Symposium on Business Modeling and Software Design
14

cost change of battery as a very valuable feature.
However, this is purposefully missing from Apple’s
products.
Steve Jobs maintained a remarkable constancy in
the kind of products he envisioned. According to
Isaacson (2011) as way back as the early Macintosh
days he wanted to design more curvy, colourful and
friendly looking computers. Although the first
Macintosh was a good start, the really curvaceous
and colourful computers appeared with the iMac
some 15 years later. Whereas during his absence
Apple designed more and more common looking
computers, when Jobs took over in 1997 he re-
established the design philosophy he began in the
1970s.
As strange as it may sound today, Jobs was
reluctant to allow third party developers to create
apps for the iPhone for fear of compromising its
security and integrity (Isaacson, 2001). Only when
he found a way to bring together both aspects of
opening the iPhone to external developers while
maintaining strict control over what they provided,
did Jobs accept to change his opinion. The result
was the famous Apple Store, which today provides
great value to customers as well as to Apple and to
developers.
A Motorcycle Manufacturer
In (Hopwood, 2002) Hopwood describes a project in
a motorcycle manufacturer in the 1930s where
engineering produced a magnificent motorcycle, far
superior to competition but management was
unwilling to invest in the new tooling that was
required to produce it. The changes made to produce
the motorcycle with the old tooling made it too
heavy and inferior to competitors. Why would
management act in such a way? Is it simply
insensitivity or is it that there’s something else to say
about resistance to change?
Maintaining a Revenue Stream
A recent article in the New York Times (Chozick,
2012) describes attempts by General Motors to
maintain its appeal for youngsters. Apparently,
present day youngsters are less interested in owning
a car than previous generations. GM is trying to
compensate for this lack of interest by hiring MTV.
A dramatic cultural change is needed for GM to be
able to carry out the changes that MTV deems
necessary. GM does not seem to be primarily
concerned by the value it provides to these new
customers but by insuring its own revenue stream in
the medium to long-term future.
Prices of periodical subscription by for
individuals and libraries have increased even though
printing cost has largely disappeared. Where is the
value for the customer? At the same time, “new”
schemes such as borrowing ebooks are appearing
even though the borrowing of books was invented
because books were a scarce resource whereas
ebooks can be reproduced ad-infinitum. Again, the
value for the customer is unclear.
On-line Retailers
Many companies’ websites terms of use, e.g.
Apple’s iTunes, explicitly state that they make no
promise that their website contents will be error-
free, that they will offer continuous service and the
like. Apple even goes as far as saying that the sole
remedy available to dissatisfied customers is to stop
using their website.
On-Line retailers have strict policies applied to
customers who want to return products. These rules
vary with the location of the company. In
Switzerland, for example, the rules are often much
more strict than in the United States. These policies
embody legal and cultural aspects of the company
and of the country and region concerned. Return
Merchandise Authorizations (RMA) are sometime
imposed by retailers. International sales are
frequently subject to stricter rules and exclusions
than domestic sales. The value for the customer is
not apparent in these policies.
Even Amazon.com that prides itself on its
superior customer service cannot avoid having some
rules concerning the return policies governing items
purchased by customers. These rules exclude the
returns of some items and defines what can be
returned and it what state. Returns are accepted
within 30 days, for example, but why 30 days? Why
not 90 or 10? Why is there a limit at all? The return
policy also excludes returns for items bought
through the CDNOW Preferred Buyer’s Club. Why
are these items excluded? Also music items must be
unopened for the return to be accepted whereas
books do not. Why is this?
A Healthcare Insurance
All Swiss residents are obliged by law to have health
insurance, which they pay for themselves. Health
insurance premiums for a family of four )2 adults
and two children under 18 years old) is about 1000
Swiss Francs for a standard plan with the lowest co-
Homeostasis - The Forgotten Enabler of Business Models
15

payment. The premiums have increased regularly
every year for the last 10 to 15 years. Switching
from one insurer to another is possible once a year.
Many Swiss residents try to switch to the insurer that
offers the lowest cost each year. In 2010 one of the
smaller insurers was at the top of the list of the least
expensive insurers. This insurer also had a very good
reputation for quality. The result was a massive flow
of new customers to this insurer. About 18 months
later many new customers received a surprising and
important premium hike, some of more than 60%,
making this insurer the most expensive. Thus, this
insurer went from the least expensive to the most
expensive. This new pricing scheme will probably
result in a massive drain of customers to other
insurers. This price increase makes no sense if the
goal of the insurer, as enterprise modelling methods
consider, is to attract more customers.
3 AN OVERVIEW OF BUSINESS
MODELING
Business modelling, enterprise modelling, enterprise
architecture and enterprise engineering are used
somewhat interchangeably to mean models of how
an organization functions. Business modelling has
emerged from the Information Technology (IT)
practice as a way for IT people to understand the
business’s information needs. One of the early IT
frameworks that integrate some aspects of business
is what came to be called the Enterprise Architecture
Framework, the Information Systems Architecture
Framework, or more commonly the Zachman
Framework (Zachman, 1987). Zachman’s
framework is made of a matrix in which the rows
represent entities and the columns represent
questions about these entities (e.g., what, how,
when, why, where). The two topmost rows of
Zachman’s matrix represent the entities that are
important to the business, the actions (processes)
that are important, and the business locations.
Sowa and Zachman define a business model as
(1992): the “design of the business” that shows “the
business entities and processes and how they
interact.” From the architecture perspective inherent
in this framework, a business model is seen as
(Sowa and Zachman 1992): “the architect’s
drawings that depict the final building from the
perspective of the owner, who will have to live with
it in the daily routines of business.”
The Reference Model of Open Distributed
Processing is an ISO/IEC standard for describing
organizations, their informational needs and their IT
support (ISO/IEC, 1995-98). It consists of five
viewpoints on the business: Enterprise, information,
computational, engineering and technology (Kilov,
1999). The enterprise viewpoint captures the
purpose, scope and policies of the organization
(Kilov, 1999).
ArchiMate is a more recent enterprise
architecture method, which models business
processes and their support by IT. ArchiMate
defines business systems as dynamic systems. A
dynamic system is described by active structure
concepts (also called agents), passive structure
concepts (also called patiens) and behavioural
concepts (Lankhorst et al., 2009). ArchiMate is
made of three layers called Business, Application
and Technology (Lankhorst et al., 2009). The
business layer describes business actors and roles
performing business processes that deliver products
and services to external customers. The application
layer describes the support provided by software
applications to the business layer. The technology
level describes the infrastructure necessary to run the
software applications (Lankhorst et al., 2009).
The Design & Engineering Methodology for
Organizations (DEMO) is a methodology for
literally engineer organizations (Dietz, 2006).
Organizations are said to be “designed and
engineered artifacts” much like cars and IT systems
but with the exception that their “active elements are
human beings in their role of social individual or
subject.” (Dietz, 2006). In DEMO the essence of the
enterprise are transactions consisting of production
acts and coordination acts between the subjects.
With production acts the subjects create the “goods
or services delivered too the environment.” With
coordination acts the subjects “subjects enter into
and comply with commitments toward each other
regarding performance of P-acts Examples of C- acts
are “request,” “promise,” and “decline.”” (Dietz,
2006).
The examples above are all methods that attempt
to model the organization with multiple viewpoints
and multiple levels, i.e. from business to IT. Other
business modelling methods address only the
strategic definition level. e
3
value focuses on the
exchange of value objects between economic actors
(Gordijn and Akkermans, 2003). The organization is
viewed only as a black box. e
3
value has been linked
with i*, a leading Goal Oriented Requirements
Engineering method (Gordijn and Yu, 2006). Value
and goal models are used to show the value activities
that contribute to the enterprise goals (Gordijn and
Yu, 2006).
Second International Symposium on Business Modeling and Software Design
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The Business Model Ontology, BMO,
(Osterwalder and Pigneur, 2010) provides multiple
ways of defining business models. Osterwalder and
Pigneur define the concept of business model as
(Osterwalder and Pigneur, 2010): “the rationale of
how an organization creates, delivers and captures
value.” BMO proposes a canvas containing 9
elements: Customer Segments, Value Propositions,
Channels, Customer Relationships, Revenue
Streams, Key Resources, Key Activities, Key
Partnerships and Cost Structure (Osterwalder and
Pigneur, 2010). Osterwalder and Pigneur (2010)
describe a number of business model patterns and
show how they can described in the canvas. BMO
focuses on the strategy formulation level and doesn’t
have an architecture component. The execution of
the business model stops at the definition of the key
resources and partnerships. More recently, work is
underway (Fritscher 2011) to couple BMO and
ArchiMate in order to provide a more complete
business layer for ArchiMate and to more finely
define the execution of BMO business models.
Most business modelling frameworks assume
that the organization’s main purpose is to provide
value to the customer. Hammer, for example
(Hammer, 1996), asks the question “what is a
company? What is it for?” The answer according to
Hammer is that (Hammer, 1996): “a company exists
to create customer value. Everything a company
does must be directed to this end.” Hammer defines
a customer in quite unorthodox terms. Moving
beyond the notion of (Hammer, 1996) “someone
who buys what the company sells.” He defines a
customer as (Hammer, 1996): “people whose
behavior the company wishes to influence by
providing them with value.” Hammer considers as
customers a much larger set than is traditionally the
case. He gives the following list as customers of a
pharmaceutical company (Hammer, 1996):
A. “The patient
B. The physician
C. The pharmacist
D. The wholesaler
E. The Food and Drug Administration
F. The Insurance company”
Notice that some of these customers, most
notably, the physician, pharmacist and wholesaler
would often be seen as suppliers rather than
customers, whereas the Food and Drug
Administration would be seen as a regulator today.
Hammer’s point is that their behaviour needs to be
influenced by the company so that they are all
willing to do their part in the sale of the medicine
sold by the company. But the value expected by
each of these customers is not the homogenous. The
pharmacist expects a different value than the patient
and the insurance company. The Food and Drug
Administration is there to impose rules that constrain
the sale of the medicine.
For Hammer (Hammer, 1996): “All of a
company’s activities and energies must be focused
on and directed to the customer, who is, after all, the
source of the company’s revenue.” Hammer (1996)
explains why he puts customers as the sole and only
reason for existence of a company by arguing that
(a) shareholders also provide funds to the company
but employees of a company cannot be motivated by
the argument that they need to create more
shareholder value. (b) In a global economy,
customers have the upper hand over suppliers.
As we have seen in the various examples from
the business modelling literature, value creation for
customers is seen as the single most important
reason for a company’s existence. The resources,
activities, and structure of the company are
subservient to this all-encompassing goal.
With respect to the business examples we gave
in the previous section, we can formulate a few
critiques of this view.
If customers have the upper hand then why is it
that the supplier defines the sales conditions and not
the customer? Can an iPhone customer define the
iTunes store conditions, or Google’s privacy rules?
Inspecting sales conditions and contracts of all
kinds, shown in the previous section, we see that
they protect the supplier more than they protect the
customer. We are forced to conclude that companies
cannot really maximize the value proposed to any
individual customer, as proposed in business
modelling.
In business modelling, it is assumed that the
structure of the organization is defined once the
value proposition has been defined. In other words,
structure follows strategy. But structure, as
Mintzberg et al. put it (1998): “follows strategy like
the left foot follows the right” meaning that it is
structure that enables strategy and strategy that
changes the structure. Hence, without a firm
structure of some kind, no strategy is possible. But
where does structure comes from and how is it
maintained?
As we have seen, business modelling methods
mostly use abstractions such as roles, agents, actors,
processes, transactions, commitments, services and
value. These abstractions have been carefully
devised to be free of any real human element, which
rarely or ever appear in these models. However,
ultimately it is people and organizational
Homeostasis - The Forgotten Enabler of Business Models
17

departments that must execute the business models
and it is then that problems arise because they were
abstracted since the beginning.
4 MAINTAINING IDENTITY
Remember that Steve Jobs wanted to create an
enduring company, but what did he mean by the
term enduring? What is an enduring company? Let’s
take a few examples? Compaq existed for some 20
years, since1982 until its acquisition by HP in 2002.
During that time it could have been said to be an
enduring company, since nothing ultimately lasts
forever. But what made Compaq enduring and what
ended this endurance? We have shown elsewhere
that for an organization to exist, it needs to maintain
a number of norms (states that remain stable or
constant) for a set of observers (Regev and
Wegmann, 2004, Regev and Wegmann, 2005,
Regev et al., 2009, Regev et al., 2011, Regev and
Wegmann, 2011). Based on this model, Compaq
existed because it maintained a number of norms
that customers, shareholders, suppliers, employees,
competitors and others could see as identifying the
organization called Compaq. When Compaq was
acquired by HP most of its constituent elements, e.g.
people, buildings, machines and even website,
continued to exist but were not organized in a
coherent whole that observers could identify and call
Compaq. Instead, most of them were absorbed in a
new structure called HP with different relationships
giving them a different meaning for observers.
Drawing an analogy with biological phenomena,
we can say that a company that is being acquired by
another is quite similar to a mouse being eaten by a
cat. The mouse maintains somewhat independent
existence and as observers, we can identify it as a
mouse. If it is caught and eaten by a cat, none of its
constituent elements have disappeared, but the
relations that they had, which made a whole that we
could identify as a mouse, have been altered so that
we cannot see the mouse anymore.
Whether it is a company or a mouse, from this
general systems point of view, the process is the
same. An organized entity that can be identified as a
whole, having some integrity, is swallowed by
another and cannot be identified as this whole
anymore.
The concept of an open system explains the
threats and opportunities posed by the environment
to the organization (Regev and Wegmann, 2004,
Regev and Wegmann, 2005, Regev et al., 2009,
Regev et al., 2011, Regev and Wegmann, 2011). An
open system draws energy from its environment in
order to decrease its entropy. Negative entropy
(Negentropy) is a measure of order. In a world
governed by the second law of thermodynamics, any
closed system will move toward positive entropy,
i.e. disorder. To maintain order an open system
draws energy from its environment. In terms of our
discussion above, this means that organizations
exchange goods, services, ideas and money with
their environment in order to maintain their internal
relationships in specific states so that their
stakeholders identify them (Regev and Wegmann,
2004, Regev and Wegmann, 2005, Regev et al.,
2009, Regev et al., 2011, Regev and Wegmann,
2011). Organizations, therefore, must establish
relationships with other organizations (Regev and
Wegmann, 2004, Regev and Wegmann, 2005,
Regev et al., 2009, Regev et al., 2011, Regev and
Wegmann, 2011). These relationships, as we have
seen are necessary but also potentially harmful
(Regev et al., 2005). Compaq, for example, had to
have relationships with its competitors, which
opened the door for its acquisition by HP.
To endure, therefore, the organization as much
as the animal, must protect itself from threats to its
organized whole. Not all of these threats come in the
form of a cat or a buyout. The organization must
protect itself from many threats, most of which may
look benign (consider Amazon’s threat to Barnes
and Noble or Borders in 1995).
In the next section we explain Cannon’s heuristic
device, Homeostasis, which explains how this
protection is done.
5 HOMEOSTASIS
Homeostasis is a term coined by Walter Cannon, a
physiologist, to describe the way a human body and
other organized entities maintain constancy in a
changing world (Regev et al., 2005, Regev and
Wegmann, 2005, Weinberg and Weinberg, 1988).
Homeostasis literally means (Weinberg and
Weinberg, 1988): “remaining the same.”
Weinberg and Weinberg (1988) describe
Homeostasis as a heuristic device to think about how
states remain constant (i.e. how norms are
maintained). They provide the following quote from
Cannon (Weinberg and Weinberg, 1988):
Proposition I In an open system, such as our
bodies represent, compounded of unstable
material and subjected continually to disturbing
conditions, constancy is in itself evidence that
Second International Symposium on Business Modeling and Software Design
18

agencies are acting or ready to act, to maintain
this constancy [..]
Proposition II If a state remains steady it does
so because any tendency towards change is
automatically met by increased effectiveness of
the factor or factors which resist the change. [..]
Proposition III The regulating system which
determines a homeostatic state may comprise a
number of cooperating factors brought into
action at the same time or successively. [..]
Proposition IV When a factor is known which
can shift a homeostatic state in one direction it is
reasonable to look for automatic control of that
factor, or for a factor or factors having an
opposing effect. [..]
Note that Cannon speaks in very general terms,
he takes the example of a body but what he says can
be applied to any enduring organization. Hence,
Weinberg and Weinberg (1988) note that
homeostasis is a very general and useful heuristic
device.
Weinberg and Weinberg (1988), give colourful
names to Cannon’s proposition, arguing that they are
so important that they merit memorable names. They
identify 5 principles in Cannon’s four propositions.
The fourth proposition giving two distinct principles.
They thus call them pervasiveness, perversity, plait,
pilot and polarity principles.
The Pervasiveness principle is a general
statement that draws our attention to the fact that in
a changing environment, behind every constant state
there are mechanisms that act against change. It
refers to the ubiquity and never ending nature of
regulatory mechanisms. It reminds us that we need
to investigate how each entity we observe is
maintained constant.
The perversity principle tells us to look for
activities that maintain this constancy (Weinberg
and Weinberg, 1988). Not only should we look for
activities, but we should also expect increased
effectiveness of these activities when they oppose
change.
The plait principle tells us to look for multiple
mechanisms and not stop when we found only one
(Weinberg and Weinberg, 1988). A homeostatic
system brings together multiple mechanisms, each
having a specific state to maintain constant.
The pilot principle makes us look for an
automatic control of each mechanism (Weinberg and
Weinberg, 1988). This automatic control explains, in
part, why we often do not see homeostatic
mechanisms. When some state is controlled
automatically, by definition, no conscious control is
needed. Hence, most homeostatic mechanisms are
applied without us even being aware of them. They
have been internalized and made tacit (Vickers,
1987). Often, it is only when they fail that we
become conscious of them, as shown in (Winograd
and Flores, 1986).
The polarity principle makes us look for
mechanisms that have opposite effects from one
another (Weinberg and Weinberg, 1988). These are
mechanisms that counter the counter of change.
These opposing mechanisms can be quite confusing.
They act against each other in ways that often seem
to us to be at odds or to be inconsistent. Their
overall effect, however, is to ensure that the state
controlled by the homeostatic system does not stray
outside the tolerance level, or as Weinberg and
Weinberg (1988) call them, the “critical limits.”
A homeostatic system does not distinguish right
from wrong. It only maintains some state constant. It
doesn’t care whether maintaining this constancy is
good or bad. This is as true for a human body as it is
for an organization. Weinberg and Weinberg
describe this property of homeostatic systems as
(1988): “The same mechanisms that prevent us from
being poisoned also prevent us from being
medicated.” The “right” strategy that may be able to
save a company can be effectively diffused by
homeostasis. When conditions change and the
homeostatic system doesn’t, its reaction to change
may not be effective. Hence, it is up to an observer
to determine whether a given constancy is good or
bad, not for the homeostatic system itself.
What we often call learning, is a way to change
this constant state (Regev and Wegmann 2005). This
means that the homeostatic system needs to create
new mechanisms for maintaining this state constant.
The perversity and polarity principles create
inconsistency that is often judged by observers to be
a bad situation to be corrected but is merely what it
takes to maintain constancy.
Despite the complexity of a homeostatic system,
it may not always be successful. If all homeostatic
systems were always successful, nothing would ever
change and everything would last forever. Thus,
when some changes occur, the homeostatic system
will adapt to them and different mechanisms will be
produced to enforce a new constancy. This may
result in a new identity for one or more observers.
Because homeostasis is such a ubiquitous
phenomenon in enduring organizations and because
business modelling is ultimately concerned with
creating enduring organizations, homeostasis has a
very large applicability to business modelling, In the
Homeostasis - The Forgotten Enabler of Business Models
19

next se
c
used in
f
6 H
O
B
U
We beg
i
it mean
t
an orga
n
organiz
a
not nece
what is
system (
W
is not n
e
b
uilding
from th
e
b
e a m
e
Weinbe
r
some pr
o
is not a
b
inside o
f
1988) “
t
This in
t
environ
m
the orga
n
a homeo
The
sale, co
n
supplier
s
part of
h
inside o
f
b
e unst
a
organiz
a
“unstabl
e
disturbi
n
multiple
rules, as
Figu
r
c
tion we outl
f
uture busines
O
MEOST
A
U
SINESS
M
i
n by asking t
h
t
o be part of
a
n
ization. Wh
a
a
tional model,
e
ssarily what
i
subject to th
e
Weinberg an
d
e
cessarily phy
s
and even if
e
given buildi
n
e
mber of a
r
g (1988) e
x
o
tection fro
m
b
solute. It si
m
f
the organiz
a
t
o come into
t
urn means t
h
m
ent will not
n
ization. Phy
s
static protect
i
business rul
e
n
tracts etc. th
a
s
, members
a
h
omeostasis.
T
f
the organiz
a
a
ble relation
s
a
tion. Reme
m
e
material
a
n
g conditions.
mechanisms
specified by
C
r
e 1: What ma
k
ine some as
p
s modelling
m
A
SIS FO
R
M
ODELI
N
h
e basic que
s
a
n organizati
o
a
t we put ins
i
such as the
o
i
s physically
c
e
protection
o
d
Weinberg,
1
s
ically contai
n
it is its peo
p
n
g. What do
e
company?
A
x
plain, it me
m
some threat
s
m
ply makes i
t
a
tion (Weinb
e
equilibrium
w
h
at signals o
r
be easily t
r
a
n
s
ical contain
m
i
on.
e
s, terms of
u
a
t organizatio
n
a
nd custome
r
T
hey are desi
g
a
tion from w
h
s
hips inside
m
ber that
C
a
nd subjecte
d
” Enduring o
in place in
C
annon’s pro
p
k
es these relatio
n
p
ects that ca
n
m
ethods.
R
N
G
tion of what
d
o
n, or to be i
n
i
de the box
o
o
ne in Figure
c
ontained in i
t
o
f its homeos
988). A com
p
n
ed in one ar
e
p
le come an
d
e
s it mean th
e
A
s Weinberg
ans
b
eing u
n
s
. This prote
c
less easy fo
r
rg and Wein
b
w
ith the exter
i
r
stimuli fro
m
n
smitted to w
i
m
ent is also o
f
u
se, conditio
n
n
s impose on
t
r
s are the vi
s
g
ned to protec
t
h
at it conside
r
and outside
annon refer
s
d
continuall
y
rganizations
h
to enforce t
h
p
ositions.
n
ships durable
?
n
be
d
oes
n
side
o
f an
1, is
t
but
s
tatic
p
any
e
a or
d
go
e
n to
and
u
nder
c
tion
r
the
b
erg,
i
or.”
m
the
i
thin
f
fers
n
s of
t
heir
s
ible
t the
r
s to
the
s
to
y
to
h
ave
h
ese
?
ent
i
ho
m
as
k
org
exi
s
a
h
exi
s
b
u
s
tha
t
its
org
out
Ar
c
sit
u
wa
n
use
ch
a
org
wa
y
M
o
use
ex
p
it
d
to
m
co
m
of
t
ho
m
ho
m
str
a
str
a
for
t
Ap
p
re
m
ho
m
re
m
rea
c
Ap
p
im
p
b
e
fo
tha
t
iPa
d
ori
g
int
e
att
e
ha
p
b
ei
n
Ap
p
acc
res
e
hal
t
These mech
a
i
ties within t
h
m
eostatic sys
t
what make
s
anization l
e
s
tence, what
m
h
euristic de
v
s
tence, we c
s
iness model
h
t
keeps it ali
v
activities wi
l
anization’s
n
s
ide the org
a
c
hitecture m
e
u
ation but a
n
t our model
s
ful to model
t
Business m
o
a
nge in mi
n
anization as
i
y
we want it
t
o
delling the
ful in both c
a
p
lain what ma
k
urable. For t
h
m
ake it durab
l
When creat
i
m
pany. We n
e
t
he company
a
m
eostasis.
T
m
eostasis ca
n
a
tegy or def
e
a
tegy fits the
s
t
unate that so
m
p
le pre 1985
m
oving projec
m
eostatic me
c
m
iniscent of 1
c
tion becaus
e
p
le was sub
j
p
osed the sa
m
fo
re, albeit wi
t
t
the new
A
d
) share som
e
g
inal 1984 M
a
e
grated hard
w
e
ntion to de
s
p
pened by ch
a
n
g imposed
o
p
le, Apple
epted expa
n
e
mbled IBM
t
when Jobs’s
The homeo
s
a
nisms will
b
h
e organizatio
n
t
em. Referrin
g
s
each of t
h
e
ad a so
m
m
akes it dura
b
v
ice for und
e
a
n presume
h
as some sort
e. This, in tu
r
l
l not be ali
g
n
eeds. Total
a
nization, as
e
thods is n
o
n
on-desired
s
s
to be as ac
c
h
ese homeos
t
o
delling is o
f
n
d. We ma
k
i
t is today (th
o be in the f
u
homeostatic
a
ses. For the
a
k
es the organ
i
h
e to-
b
e mode
l
l
e.
i
ng strategic
b
e
ed to pay at
t
a
nd the way i
t
T
he structu
r
n
either e
n
e
at i
t
, depe
n
s
tructure. In
A
m
e of the cul
t
still existed
t
s and peopl
e
hanism) and
p
985. This in
e
Jobs coun
t
ected to fro
m
m
e vision and
t
h some mino
A
pple produc
t
e
of the
b
asi
c
a
cintosh, for
e
w
are and
s
s
ign and pac
k
a
nce, but is d
u
o
n Apple. Pr
i
was produ
c
n
sion cards,
PCs. This st
r
constancy to
o
tatic system’
b
e upheld by
n, each havi
n
g
to Figure
1
h
e entities
w
m
ewhat in
d
a
ble. As hom
e
d
erstanding c
that each e
n
of homeosta
t
r
n, means tha
t
g
ned with t
h
alignmen
t
i
sought by
E
o
t even an
s
ituation. Be
c
c
urate as pos
s
t
atic mechani
s
ften done
w
k
e a mode
l
h
e as-is mode
l
u
ture (the to-
b
mechanisms
a
s-is model t
h
ization or so
m
e
l it would ex
p
b
usiness mo
d
t
ention to the
t
is maintaine
d
u
re, maintai
n
able the e
n
n
ding on wh
A
pple’s case,
t
ure (read str
u
d
. He reinfor
c
e
who did n
o
p
roceeded to
a
itself is a ho
m
t
ered the ch
a
m
1985 to
1
strategy that
w
o
r changes.
R
t
s (e.g. iPho
n
c
characterist
i
example, sea
l
s
oftware, ve
c
kaging. This
u
e to Jobs’s
c
i
or
t
o Jobs’s
c
ing compu
t
which in
c
r
ategy was b
o
k over.
’
s ability to
different
n
g its own
1
, we can
w
ithin the
d
ependent
e
ostasis is
o
ntinuing
n
tity in a
t
ic system
t
some of
h
e overall
i
nside or
E
nterprise
idealized
c
ause we
s
ible, it is
s
ms.
w
ith some
l
of the
l
) and the
e model).
can be
h
is would
m
e part of
p
lain how
d
els for a
structure
d
through
n
ed by
n
visioned
e
ther the
Jobs was
u
cture) of
c
ed it by
o
t fit it (a
a
strategy
m
eostatic
a
nge that
1
997 and
w
as there
R
emember
n
e, iPod,
i
cs of the
l
ed cases,
r
y close
has not
c
onstancy
return to
t
ers that
c
reasingly
r
ought to
maintain
Second International Symposium on Business Modeling and Software Design
20

constancy in the presence of change sometimes has
negative implications (from the point of view of
some observer). Hence, Jobs unwillingness to allow
third party developers to offer applications on the
iPhone in order to maintain its integrity and despite
extensive lobbying from colleagues could have
resulted in serious loss of business opportunities.
Again, Jobs agreed to open the platform only when
he was convinced that he could control the
applications, in itself a research for homeostasis.
We should not forget the polarity principle of
homeostasis where homeostatic mechanisms have
opposing effects. In Apple’s example, Jobs slashed
the majority of Apple’s products and laid off
thousands of people (Isaacson, 2011) in what can be
seen as an attempt to defeat Apple’s homeostatic
system created while he was away.
The perversity principle can explain another
action that saved Apple. Jobs convinced Bill Gates,
Apple’s main competitor, to invest $150M in Apple.
Saving a competitor is a way for the homeostatic
system to not damage itself by being too successful
in moving a state in a given direction. If Microsoft
would have been too successful in driving off
competitors and Apple would have gone bankrupt,
Microsoft would have been more vulnerable to the
anti-trust litigation that was already beginning.
In the case of the Swiss healthcare insurer, the
reversal in strategy can be explained by the
homeostatic system prevailing on the change that is
considered unacceptable. The insurer was
overwhelmed with the new influx of customers from
regions in which it was not traditionally present. It
risked lowering its quality standards. By law, it has
to have a certain reserve of money for each person
insured and it was difficult to have this reserve with
a massive influx of customers. All in all, the insurer
preferred to get rid of many customers in order to
maintain its quality standards and its compliance.
This is a typical homeostatic reaction. Thus, the
organization separates between customers that it
wants to keep and those that it does not, thereby
maintaining the states that it deems important (level
of quality, reserves) unchanged. The value to these
customers may be described as negative. We see that
the homeostatic system does not necessarily
maximize value for a given customer.
Likewise, insuring a revenue stream drives
companies such as banks and mobile phone
operators, to provide better service to customers who
bring large revenues (premium customers). Just
providing value to customers is not the main point. It
is rather insuring a steady or steadily increasing
revenue stream. Maintaining a steady revenue
stream also explains why it is the supplier that
usually fixes the price of a good or service. It is
rarely the customer who fixes the price. If
companies were truly interested in providing value
to customers, they would give their products or
goods for free or would allow customers to negotiate
the price. Similarly, employees do not fix their own
salaries so as to maintain the profit of the company.
When the revenue or profit do decline below
expectations (below what the homeostatic system
defines as acceptable) many actions will be taken at
the same time or successively, as described by the
plait principle, in order to reduce cost, increase sales,
increase research and development, warn
shareholders to lower their expectations, freeze
hiring, renegotiate credit, layoffs etc. Some of these
actions may ignite other actions from other
homeostatic systems, such as strikes and
demonstrations by employees, intervention by
political authorities, and the like.
The obliviousness of homeostatic systems for the
goodness or badness of the constancy they maintain
often results in frustration by change agents. For a
homeostatic system, every change is a threat, not an
opportunity. An opportunity is necessarily a change
to a state kept constant by the homeostatic system
and is therefore an unwelcome occurrence.
Finally, taking homeostasis seriously is to accept
inconsistencies rather than seeking alignment. From
a homeostasis perspective inconsistency can be seen
from the polarity and perversity principle
perspective as a necessary mechanism to insure
survival.
7 CONCLUSIONS
Business modelling methods take the underlying
organization that is supposed to carry out the
strategy defined in the business model for granted.
They assume that the organization will either follow
the defined strategy or that it can be engineered to fit
the strategy. In essence they consider that the
organization has an infinite capacity to change. This
is overlooking the everyday observation that any
organization that has been in existence for even a
few years has built some very strong mechanisms
that resist change.
Any surviving organization has adapted to a
specific environment. It has built a fit (or
congruence) between its environment (customers,
regulators, investors, competitors) and its internal
structure. Changing this internal structure to fit a
different environment is quite difficult. Without
Homeostasis - The Forgotten Enabler of Business Models
21

taking this aspect into consideration, the probability
of successfully implementing a new business model
is very low. Business modelling must take this into
account. Homeostasis is a heuristic device that
provides a plausible explanation to the way
organizations resist change in order to maintain their
identity and therefore survive in a changing
environment. We have shown that homeostasis can
explain both formulation of Business Models (how
to deliver and capture value) and the operational part
(how the strategy is carried out).
Modelling homeostasis does not mean that we
consider that change is impossible, only that change
is very hard to create and maintain. To institute
change, the homeostatic system first must be
neutralized. This is very hard to do because of
Cannon’s four propositions. However hard it is,
resistance to change can have very good reasons that
need to be investigated.
Weinberg and Weinberg (1988) point out that
Cannon doesn’t speak of goals and targets but rather
about constancy. A homeostatic system, therefore,
has no specific goal or target. It simply maintains
some constancy with whatever number of
mechanisms it can bring to bear. If we want to take
homeostasis seriously, being that it provides such a
good explanation of organizational life (and even
life in general), we need to overcome our own
homeostatic system and remove the terms goals,
targets, purpose, ends etc. Rather we need to search
for constancy and how it is maintained. This can be
a radical change in business modelling, a change that
its own homeostasis may be unwilling to allow.
This work should be followed by a more
humanistic view in business modelling, modelling
people and their attitude toward change rather than
the traditional role, business rule, business process
paradigm.
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