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SYSTEMS THEORY: A HOLISTIC APPROACH TO MANAGEMENT (A Laymans Guide)1 By William Todd The purpose of this article is to review, in simple terms, certain important systems theory concepts and then relate them to a few selected practical organizational applications. Before proceeding with how these concepts may be practically applied to organizations, it might be helpful to first review some of the history/background and major concepts of systems theory. The systems approach to management views the organization as a system; that is, it is interdependent and interwoven with other systems and the environment. Within each system are more sub-systems. Stated simply, systems theory maintains that everything is related to everything else. A good example is the human body made up of a digestive system, a circulatory system, a respiratory system, a nervous system, etc. When the environment is warm, a variety of sub-systems come into play and the body perspires. It also does not take much imagination to see that closing down the nervous system will have a big impact on the other parts of the body or system. Systems theory offers managers a useful perspective. The manager who grasps the nature of open systems can recognize and assess the importance of the environment and understand how the organization operates within it. History: Ludwig von Bertalanffy is one of the best-known systems theorists.1 He was a biologist who attempted to find a general systems theory that would fit all of the sciences. (This is why the terms used to explain systems theory come from the hard sciences.) Although he failed to do that, his concept of steady-state equilibrium in the environment and the openness of systems to the environment were foundational in the development of systems theory of management. His general systems theory helped to explain how organizational systems function. Kenneth Boulding, an economist, built directly on the work of Bertalanffy; his work led to a better-developed integrative model.2 Bertalanffy and Boulding developed their ideas in the 1930s and 1950s. However, it was not until the 1960s and 1970s that management theory was developed along the systems approach. Freemont E. Kast and James E. Rosenzweig, management researchers and authors, extended the systems perspective to the internal functioning of the organization in the early 1970s.3 Kast and Rosenzweig viewed systems theory as a way of explaining the organization and its relationship to its environment. They viewed the organization as a system consisting of several subsystems, including social systems. As managers understand how these systems interact and affect each other, they make better decisions. Strategic management models are essentially based on the systems approach to
1

Authors note: This article focuses primarily on systems theory for management and is therefore organizationally oriented. The examples used relate to the two major types of organizations: the for-profit and the not-for -profit sectors. General systems theory goes beyond what is presented here.

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management. Today, most management concepts assume an underlying systems approach.4 Management information system designers use the systems concept to model organizations internal and external environments to help managers make better decisions, especially strategic ones.5 The Systems Model - (Management/Organization)6 Systems theory can best be conceptualized as an organization made up of systems and sub-systems. Within this context there are inputs, a transformation process and an output. All of this takes place within the framework of an interacting environment. For example, a business takes certain inputs--financial, informational, technological, human, material, and then transforms them through some technology into outputs: goods or services. Environmental factors: The environment could be either external or internal and includes social, political, technological, and economic forces. The environment could be broad and general as noted above or very specific and task related. (See Exhibit A.) Management first began taking the systems approach more seriously when very negative input from the environment could not be ignored. The Sierra Club and other public interest groups bombarded managers with demands that their actions be more responsible towards the physical environment. Systems theory offered some insights into these situations. Sub-System: All systems have sub-systems; a sub-system is part of the whole system. For example, departments make up divisions in an organization. An accounting department may have a receivables group, an accounts payable group, etc. That same accounting group may have a computer system to aid them in their work. Inputs: Every system or sub-system has inputs and outputs. Inputs are usually thought of as resource inputs such as financial, human, material, information, or technology. However, inputs can also be thought of as anything that can or should result in a response

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Task Environment * Customers * Suppliers * Competitors * Regulators * Unions THE ORGANIZATION INPUT * Material * Human * Financial * Information TRANSFORMATION (Technology) OUTPUT FEEDBACK * Products * Services * Information * Etc.

General Environment * Economic Factors * Technology * Political - Legal Considerations * Sociocultural Factors * International Dimension

EXHIBIT A from the system or sub-system that is receiving the input. For example: a phone call from a customer (input) could result in an order being placed for a product. One sub-systems output could be another sub-systems input. The aforementioned customer order might be an input to the shipping department whose output is a shipped product. Transformation: The transformation process is most easily illustrated as a business which takes various resource inputs and transforms them through operations, management, efforts of labor or technology into outputs of goods or services. Transformation can come in many ways but usually means some action upon the input. Outputs: Outputs can be more than goods or services and are usually the result of action taken upon some input. One perspective of the systems approach to management is that organizations operate in a society. Therefore, there are societal consequences to an output such as toxic waste. In this case, the output could be in the form of public relations or a variety of other intrinsic but not always clearly defined outputs. Synergy: Systems, to prosper and survive, must have synergy. Synergy means that the combined and coordinated actions of many other parts of the system (sub-systems) achieve more than all the individual parts could have achieved if acting alone. For example, if all the employees of Eastman

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Kodak individually went into the business of making and selling film, they could not achieve individually what they could achieve collectively because of the benefits of specialization, size, disbursement, special knowledge, etc. In other words, the sum is greater than the total of the individual parts. Closed vs. Open Systems: In simple terms, an open system is one that responds to its environment and a closed one does not. Prior to 1989 many Eastern European countries functioned as almost closed systems because they did not interact with others. However, in recent years Eastern Europe and the Soviet Union have become more open systems and are even trying to work out financial concerns such as currency so that they can trade and interact with capitalistic countries. An organizational system cannot fail to recognize the impact of their actions on stakeholders or their stakeholders on them. One of the greatest lessons that managers can learn is that whatever decisions they make, whatever their solutions, whatever they implement, the effects of those actions must be taken into account. Their organization is interdependent with many other organizations and systems of society. The key is understanding not only how their actions affect the environment but how the environment affects them. Feedback: The open system receives feedback from the environment as a result of its output. Managers are increasingly concerned with the impact of organizational decisions and actions on the physical environment, equal employment opportunity, consumer protection, employee health and safety, etc. Political and social pressure are other types of feedback. A simple form of feedback would be a customer opinion survey. In most instances, feedback is some form of communication. Boundaries: The concept of boundaries helps us define how to keep our system open. Boundaries can be concrete, clearly defined and determined by the organization or they may be abstract, artificial and unauthorized. An example of a clearly defined boundary would be an accounting department in an organization. The formal authority of this department does not extend across its boundaries into the manufacturing department. Boundaries may also be thought of in terms of barriers or limits. Because our accounting department is located within its boundaries of the organization, it may not know what is going on outside the company. Therefore, there are some barriers between it and the ability to get input from its environment. To be an open system, the accounting department may want to set up ways of getting input from the general environment or task environment. To do this, it may utilize other departments or individuals who are in contact with the environment to provide the needed input. These groups or individuals are sometimes referred to as linking pins or boundary spanners. (Example: a salesman is a connection between the company interior and the exterior customer.) Entropy: Entropy is the process by which systems decay. Entropy may best be understood as a process of slowing or breaking down. A good example is a bicycle turned on its back and the wheel rotated by turning the crank. Without the turning action the wheel will begin to slow down (Entropy). Cranking the wheel keeps it going (Negative Entropy). Old age in humans is a good example of entropy. When any system, including an organizational system, does not monitor feedback from the environment and make appropriate adjustments, the system may fail. For example, W.T. Grant, Studebaker, and Penn Central Railroad went bankrupt because they failed to

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revitalize themselves by keeping pace with the environment. management, from a systems perspective, is to avoid entropy.

Therefore, a primary goal of

Dynamic Equilibrium: (Homeostasis). The human body is able to maintain a steady state of body temperature even when the outside environment may be cold or warm. An organization also tends to find a way of maintaining certain equilibrium. This is a particularly important concept when considering change. An organization tends to find a place where forces for change are balanced against forces resisting change. This concept also applies to relationships and other forces within and without the organization. Applications: Many of todays leaders accept the concept of systems theory but have difficulty applying it to understand how an organization is functioning as a whole and to make appropriate adjustments when it is not. Therefore, in order for an organization to function well as an open system, there must be excellent communication from the outside environment and, just as importantly, from within. Each part of the organization must know what the other part is doing. Communication is vital up and down the organization. Today, many managers help keep their organization clearly focused and all going in the same direction by developing a clear Mission Statement and communicating it plainly and often to all employees. Many large organizations use a Strategic Management/Strategic Planning model based on the systems model. This model starts with the concept of purpose and mission and takes into account input from the environment. Used in forward planning, the organization may try to project its position into a future marketplace by beginning to make appropriate changes as it interprets the environment. These organizations actively seek information from the environment through techniques known as environmental scanning. In some cases, environmental scanning can be nothing more than attending trade shows to see what products, services, technology, etc., are developing. Another form of gathering information might be customer or client surveys that determine changing needs. As noted earlier, the environment can be classified into the two broad categories of General Environment and Task Environment. The general environment of an organization consists of five elements: economic, technological, sociocultural, political-legal, and international. The task environment can be rather vague but generally may be thought of as six elements: competitors, customers/clients, suppliers, regulators, employees/unions, and associates. To be a successful open system, an organization must get good input from all of these areas. Changes in society can have an impact on products/services. The AIDS scare of the 1990s brought an initial unprecedented demand for rubber gloves used in the health-care field. A more radical example of change occurred in the 1970s when mechanical products (such as calculators) became electronic. With the advent of the micro-chip not only did the product change, but the way the product was manufactured, the nature of knowledge necessary to make the product, the type of employees needed, etc. Some industries were radically and forever changed. Companies that did not accurately interpret these changes and adjust did not survive. A number of groups and individuals have attempted to address our changing society and forecast trends. One notable example is John Naisbitt who has written two successful books on trends: (MEGATRENDS, 1982 & MEGATRENDS 2000, 1990).7 Organizations have found this information helpful in planning. Most large organizations regularly put together long-range forecasts as part of

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their planning process; the best plans anticipate environmental changes and their impact on the organization. Using the strategic model, organizations regularly re-evaluate their purpose and mission. The importance of this exercise cannot be underestimated. As a part of this process, organizations (both for-profit and not-for-profit) should ask themselves, What business are we in? When Alfred P. Sloan, Jr., became president of General Motors in 1920, GM was in deep trouble and barely viable. Sloans definition of the purpose and mission of GM, and his development of both strategy and structure from this definition, gave GM leadership and outstanding profitability within three years or less.8 Peter Drucker, one of the outstanding writers on management, encourages the organization to add: And what will it be? What changes to the environment are already discernible that are likely to have high impact on the characteristics, mission, and purpose of our business?9 The March of Dimes is an organization that made a major change in its direction as a result of a dramatic change in its environment. It was originally formed to raise funds to fight the war on polio, a very serious disease that reached epidemic proportions in the 1950s. When the Salk vaccine was developed, the disease was brought under control and the organization was left without a purpose. The March of Dimes then re-focused its purpose and mission towards birth defects and is still a strong viable organization today. Conclusion: Whether or not a model is used for guidance, everyone concerned with organizational management must consider the importance and interdependence of every part. There remains a need for more complete understanding of the interrelationships between organizations and their environments. It is essential, then, when applying the systems approach to the study of organizations and their management, that we begin with an understanding of the external and internal environment. Action based on this understanding will be the most productive.

The author is an Associate Professor of Business at Roberts Wesleyan College, former chairman of the Business Department, and one of the major professors teaching systems theory in the Organizational Management program. He has worked extensively in Fortune 100 companies as well as non-profit organizations. Reprinted with permission.

References
1. See: Ludwig von Bertalanffy, Carl G. Hempel, Robert E. Bass, and Hans Jones, General Systems Theory: A New Approach to Unity of Science, Human Biology (December 1951), pp. 302-361; Ludwig von Bertalanffy, General Systems Theory - A Critical Review, Walter Buckley, ed., Modern Systems Research for the Behavioral Scientists (Chicago: Aldine, 1968) p. 13; Ludwig von Bertalanffy, General Systems Theory: Foundations, Development, Applications (New York: Braziller, 1968); and Ludwig von Bertalanffy, Organic Psychology and Systems Theory (Barre, Mass.: Clark University Press, 1968). 2. Kenneth E. Boulding, General Systems Theory - The Skeleton of Science, Management Science (April 1956), pp. 197208. 3. Freemont E. Kast and James E. Rosenzweig, General Systems Theory: Applications for Organization and Management, Academy of Management Journal (December 1972), pp. 447-465.

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4. For another view of Systems Theory, see: J. Miller, Living Systems (New York: McGraw-Hill, 1978). 5. Donde P. Ashmos and George P. Huber, The Systems Paradigm in Organization Theory: Correcting the Record and Suggesting the Future, Academy of Management Review (October, 1987), pp. 607-621. 6. Kast and Rosenzweig, loc. cit. 7. See: John Naisbitt, Megatrends (New York: Warner Books, 1982) and John Naisbitt and Patricia Aburdene, Megatrends 2000 (New York: William Morrow and Co., Inc., 1990). 8. See: Alfred P. Sloan, Jr., My Years With General Motors (New York: Doubleday, 1964). 9. See: Peter Drucker, Business Purpose and Business Mission (New York: Harper & Row Publishers, Inc., 1973).

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THE MODERN VIEW: SYSTEMS AND CONTINGENCY CONCEPTS By Fremont E. Kast and James E. Rosenzweig Organization theory and management practice are evolving continually. Traditional theory has been modified and enriched by knowledge from a variety of underlying disciplines. Scientific research and conceptual endeavors have, at times, resulted in divergent theories; however, in recent years an approach has emerged that offers an opportunity for convergence in organization and management theory. The systems approach provides a basis for integration by giving us a way to view the total organization in interaction with its environment and for conceptualization of relationships among internal components or subsystems. Systems concepts provide the basic frame of reference for the development of contingency views of organizations and their management. Systems and contingency approaches are discussed in this chapter via the following topics: General Systems Theory Systems Approach and Organization Theory Organization as an Open System An Integrated Systems View of Organizations Contingency Views of Organizations Contingency Views of Management Systems and Contingency Concepts for Organization and Management GENERAL SYSTEMS THEORY Over the past several decades the development of general theory has provided a basis for the integration of scientific knowledge across a broad spectrum.1 We have defined a system as an organized, unitary whole composed of two or more interdependent parts, components, or subsystems and delineated by identifiable boundaries from its environmental suprasystem. The term system covers a broad spectrum of our physical, biological, and social world. In the universe there are galaxial systems, geophysical systems, and molecular systems. In biology we speak of the organism as a system of mutually dependent parts, each of which includes many subsystems. The human body is a complex organism including, among others, a skeletal system, a circulatory system, and a nervous system. We come into daily contact with such phenomena as transportation systems, communication systems, and economic systems. In the past, traditional knowledge has been along well-defined subject matter lines. Bertalanffy suggests that the various fields of modern science have had a continual evolution toward a parallelism of ideas. This parallelism provides an opportunity to formulate and develop principles which hold for systems in general. In modern science, dynamic interaction is the basic problem in all fields, and its general principles will have to be formulated in General Systems Theory.2 General systems theory provides the broad macro view from which we may look at all types of systems.
1

The name general systems theory and many of the basic concepts were set forth by the biologist Ludwig von Bertalanffy. For general discussion of his views, see The Theory of Open Systems in Physics and Biology, Science, Jan. 13, 1950. pp. 23-29; and General System Theory, George Braziller, Inc., New York, 1968. Ludwig von Bertalanffy, Problems of Life, John Wiley & Sons, Inc., New York, 1952, p. 201. On page 176 he stresses this view: If we survey the various fields of modern science, we notice a dramatic and amazing evolution. Similar conceptions and
2

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There is an important distinction between closed systems and open systems. Physical and mechanical systems can be considered as closed in relationship to their environment. On the other hand, biological and social systems are not closed but are in constant interaction with their environment. This view of biological and social phenomena as open systems has profound importance for the social sciences and organization theory. Pervasiveness of Systems Theory The emergence of the systems approach in the study of organization is a reflection of an even broader theoretical development. General systems theory provides a basis for understanding and integrating knowledge from a wide variety of specialized fields. In complex societies with rapid expansion of knowledge, the various scientific fields become highly differentiated and specialized. In many scientific fields, the concentration over the past several decades has been analytical, factfinding, and experimental approaches in highly specific areas. This has been useful in helping to develop knowledge and to understand the details of specific but limited subjects. At some state, however, there should be a period of synthesis, reconciliation, and integration, so that the analytical and fact-finding elements are unified into broader, multidimensional theories. There is evidence that every field of human knowledge passes alternately through phases of analysis and fact-finding to periods of synthesis and integration. Systems theory provides this framework in many fields-physical, biological, and social. The development and contagion of the modern systems perspective can be traced in part to the concern of several disciplines to treat their subject matter--whether the organism, the species, or the social group--as a whole, an entity in its own right, with unique properties understandable only in terms of the whole, especially in the face of a more traditional reductionistic or mechanistic focus on the separate parts and a simplistic notion of how these parts fit together.3 The application of systems thinking has been of particular relevance to the social sciences. In sociology, Talcott Parsons led in the adoption of functionalism and the general systems viewpoint.4 Although Parsons acknowledges his debt to Pareto for the concept of systems in scientific theory, it is Parsons himself who has fully utilized the open-systems approach for the study of social structures.5 He not only developed a broad system framework but also related his ideas to the organization. Many of his concepts relating to the structure and processes of social systems will be used later in this book. In the field of psychology, the systems approach has achieved prominence. The word gestalt is German for configuration or pattern.6 The Gestaltists early adopted the concept of system, which
principles have arisen in quite different realms, although this parallelism of ideas is the result of independent developments, and the workers in the individual fields are hardly aware of the common trend. Thus, the principles of wholeness, of organization, and of the dynamic conception of reality become apparent in all fields of science. 3 Walter Buckley (ed.), Modern Systems Research for the Behavioral Scientist, Aldine Publishing Co., Chicago, 1968, p. xxiii. 4 Talcott Parsons uses the systems approach in much of his writings. His The Social Systems, The Free Press of Glencoe, New York, 1951, presents a comprehensive treatise on his views. 5 For a view of Paretos works, see Lawrence J. Henderson, Paretos General Sociology, Harvard University Press, Cambridge, Mass., 1935. 6 A gestalt is an organized entity or whole in which the parts, though distinguishable, are interdependent; they have certain characteristics produced by their inclusion in the whole, and the whole has some characteristics belonging to none of the parts.

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is more than the sum of its components, and which determines the activity of these components.7 Kurt Lewin was among the first to apply the tenets of gestalt psychology to the field of individual personality. He found that purely psychological explanations of personality were inadequate and that sociocultural forces had to be taken into account. He viewed personality as a dynamic system, influenced by the individuals environment. Harry Stack Sullivan, in his Interpersonal Theory of Psychiatry, went even further in relating personality to the sociocultural system. He viewed the foundation of personality as an extension and elaboration of social relationships. A further extension of psychology to give greater consideration to broader interpersonal and social systems is seen in the rapidly expanding field of social psychology. Modern economics has increasingly used the fundamental in economic thought, and the very subsystems of a total system. Economics is appropriate to closed systems toward dynamic systems. systems approach. Equilibrium concepts are basis of this type of analysis is consideration of moving away from static equilibrium models equilibrium considerations appropriate to open

This (sic) discipline of cybernetics is based on a systems approach. It is primarily concerned with communication and information flow in complex systems. Although cybernetics has been applied primarily to mechanistic engineering problems, its model of feedback, control, and regulation has a great deal of applicability for biological and social systems as well. More recently, our society has become increasingly concerned over the pollution and deterioration of the natural environment. Traditionally, we viewed the environment and natural resources as available for mans utilization and exploitation. We had a mechanistic, piecemeal, and suboptimal view of the ecosystem. Each act against nature was viewed separately. The accumulation of individual actions may lead to drastic environmental deterioration, but this was not previously understood. We now recognize that our relationship to our environment must be viewed from a systems approach. Another similar point of view permeating many of the social and physical sciences is the concept of holism--the view that all systems--physical, biological, and social--are composed of interrelated subsystems. The whole is not just the sum of the parts, but the system itself can be explained only as a totality. Holism is the opposite of elementarism, which views the total as the sum of its individual parts. The holistic view is basic to the systems approach. In traditional organization theory, as well as in many of the sciences, the subsystems have been studied separately, with the view to later putting the parts together into the whole. The systems approach emphasizes that this is not possible and that the starting point has to be with the total system. The foregoing discussion has attempted to show how the systems approach and associate views have become the operating framework for many physical and social sciences.

The gestalt thus constitutes a unit segregated from its surroundings, behaving according to certain laws of energy distribution. It is found throughout human behavior as well as in physiological and physical events and is thus a fundamental aspect of scientific data. Julius Gould and William L. Kolb (eds.), A Dictionary of the Social Sciences, The Free Press of Glencoe, New York, 1964, p. 287.
7

Ian Whitaker, The Nature and Value of Functionalism in Sociology, in Functionalism in the Social Sciences, Monograph 5, American Academy of Political and Social Science, February 1965, pp. 137-138.

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Psychologists, sociologists, anthropologists, economists, and political scientists have been discovering and using the system model. In so doing, they find intimations of an exhilarating unity of science, because the system models used by biological and physical scientists seem to be exactly similar. Thus, the system model is regarded by some system theorists as universally applicable to physical and social events, and to human relationships in small or large units.8 Key Concepts from General Systems Theory General concepts applicable to many different types of systems have been set forth by various writers.9 They reflect a broad eclectic overview. The key concepts of general systems theory are set for the in Figure 5.1. Although all of these concepts have some relevance, several are particularly important in the study of organization. The concept of boundaries helps us understand the distinction between open and closed systems. The closed system has rigid, impenetrable boundaries, whereas the open system has permeable boundaries between itself and a broader supersystem. The boundaries set the domain of the organizations activities. In a physical, mechanical, or biological system the boundaries can be identified. In a social organization, the boundaries are not easily definable and are determined primarily by the functions and activities of the organization. Such an organization is characterized by rather vaguely formed, highly permeable boundaries. Many systems grow through internal elaboration. In the closed system, subject to the laws of physics, the system moves toward entropy and disorganization. In contrast, open systems appear to have the opposite tendency and more in the direction of greater differentiation and a higher level of organization. Bertalanffy points to the continual elaborations of biological organisms: In organic development and evolution, a transition toward states of higher order and differentiation seems to occur. The tendency toward increasing complication has been indicated as a primary characteristic of the living, as opposed to inanimate, nature.10 This same process appears to hold true for most social systems. There is a tendency for them to elaborate their activities and to reach higher levels of differentiation and organization. There is a tendency for complex organizations to achieve greater differentiation and specialization among internal subsystems. The increased number of specialized departments and activities in complex business organizations is readily apparent. The great proliferation of department, courses, and subject matter in universities is another example of differentiation and elaboration.
Robert Chin, The Utility of Systems Models and Developmental Models for Practitioners, in Warren G. Bennis, et al., (eds.), The Planning of Change, 3d ed., Holt, Rinehart, and Winston, Inc., New York, 1976, pp. 91-92.
8

Russell L. Ackoff, Towards a System of Systems Concepts, Management Science, July 1971, pp. 661-671; F. Kenneth Berrien, General and Social Systems, Rutgers University Press, New Brunswick, N. J, 1968; Kenneth E. Boulding, General Systems Theory: The Skeleton of Science, Management Science, April 1956, pp. 197-208; Walter Buckley (ed.), Modern Systems Research for the Behavioral Scientist, Aldine Publishing Co., Chicago, 1968; A. D. Hall and R.E. Fagen, Definition of System, General Systems: Yearbook for the Society for the Advancement of General Systems Theory, Vol. 1, 1956, pp. 18-28; James G. Miller, Living Systems, McGraw-Hill Book Co., New York, 1978; John P. van Gigch, Applied General Systems Theory, 2d ed., Harper & Row, Publishers, Inc., New York, 1978; and Ludwig von Bertalanffy, General System Theory, George Braziller, Inc., New York, 1968. 10 Ludwig von Bertalanffy, The Theory of Open Systems in Physics and Biology, Science, Jan. 13, 1950, p. 26.

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Equifinality is an important characteristic of social systems. In physical systems there is a direct cause-and-effect relationship between the initial conditions and the final state. Biological and social systems operate differently. The concept of equifinality says that final results may be achieved with different initial conditions and in different ways. This view suggests that the social organization can accomplish its objectives with varying inputs and with varying internal activities. Thus, the social system is not restrained by the simple cause-and-effect relationship of closed systems. The equifinality of social systems has major importance for the management of complex organizations. A closed-system cause-and-effect adopted from the physical sciences would suggest that there is one best way to achieve a given objective. The concept equifinality suggests that the manager can utilize a varying bundle of inputs into the organization, can transform them in a variety of ways, and can achieve satisfactory output. Extending this view further suggests that the management function is not necessarily one of seeking a precise, optimal solution but rather one of having available a variety of satisfactorily alternatives. Organizations utilize many of the concepts set forth in Figure 5.1. However, it is important to recognize that there are significant differences among various types of systems. Social organizations are not natural like physical or biological systems; they are contrived. They have structure, but it is the structure of events rather than of physical components, and it can not be separated from the processes of the system. The fact that social organizations are contrived by human beings suggests that they can be established for an infinite variety of objectives and do not follow the same life-cycle pattern of birth, maturity, and death as biological systems. Katz and Kahn say: Social structures are essentially contrived. People invent the complex patterns of behavior that we call social structure, and people create social structures by enacting those patterns of behavior. Many properties of social systems derive from these essential facts. As human inventions, social systems are imperfect. They can come apart at the seams overnight, but they can also outlast by centuries the biological organisms that originally created them. The cement that holds them together is essentially psychological, rather than biological. Social systems are anchored in the attitudes, perceptions, beliefs, motivations, habits, and expectations of human beings.11 Recognizing that the social organization is a contrived system cautions us against making an exact analogy between it and physical or biological systems. The foregoing are a few of the characteristics of open systems. To the adult learner who is initially exposed to some of these concepts, they may seem complicated. Much of our educational experience emphasizes closed-system approaches--mathematics and the physical sciences, for example. The open-system view, with the properties set forth in the previous sections, is pertinent for organization theory. (See Figure 5.1, General Model of organization as an open system)

11

Daniel Katz and Robert L. Kahn, The Social Psychology of Organizations, 2d ed., John Wiley & Sons, Inc., New York, 1978, p. 37.

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Subsystems or Components. A system by definition is composed of interrelated parts or elements. This is true for all systems-mechanical, biological, and social. Every system has at least two elements, and these elements are interconnected. Holism, Synergism, Organism, and Gestalt. The whole is not just the sum of the parts; the system itself can be explained only as a totality. Holism is the opposite of elementarism, which views the total as the sum of its individual parts. Open Systems View. Systems can be considered in two ways: (1) closed or (2) open. Open systems exchange information, energy, or material with their environments. Biological and social systems are inherently open systems; mechanical systems may be open or closed. The concepts of open and closed systems are difficult to defend in the absolute. We prefer to think of open-closed as a dimension; i.e., systems are relatively open or relatively closed. Input-Transformation-Output Model. The open system can be viewed as a transformation model. In a dynamic relationship with its environment, it receives various inputs, transforms these inputs in some way, and exports outputs. Systems Boundaries. It follows that systems have boundaries that separate them from their environments. The concept of boundaries helps us understand the distinction between open and closed systems. The relatively closed system has rigid, impenetrable boundaries, whereas the open system has permeable boundaries between itself and a broader suprasystem. Boundaries are relatively easily defined in physical and biological systems but are very difficult to delineate in social systems such as organizations. Negative Entropy. Closed physical systems are subject to the force of entropy which increases until eventually the entire system fails. The tendency toward maximum entropy is a movement to disorder, complete lack of resource transformation, and death. In a closed system, the entropy can be arrested and may even be transformed into negative entropy--a process of more complete organization and ability to transform resource--because the system imports resources from its environment. Steady State, Dynamic Equilibrium, and Homeostasis. The concept of steady state is closely related to that of negative entropy. A closed system eventually must attain an equilibrium state with maximum entropy--death or disorganization. However, an open system may attain a state in which the system remains in dynamic equilibrium through the continuous inflow of materials, energy, and information. Feedback. The concept of feedback is important in understanding how a system maintains a steady state. Information concerning the outputs or the process of the system is fed back as an input into the system, perhaps leading to changes in the transformation process and/or future outputs. Feedback can be both positive and negative, although the field of cybernetics is based on negative feedback. Negative feedback is informational input which indicates that the system is deviating from a prescribed course and should readjust to a new steady state. Hierarchy. A basic concept in systems thinking is that of hierarchical relationships between systems. A system is composed of subsystems of a lower order and is also part of a suprasystem. Thus, there is a hierarchy of the components of the system. Internal Elaboration. Closed systems move toward entropy and disorganization. In contrast, open systems appear to move in the direction of greater differentiation, elaboration, and a higher level of organization. Multiple Goal Seeking. Biological and social systems appear to have multiple goals or purposes. Social organizations seek multiple goals, if for no other reason than that they are composed of individuals and subunits with different values and objectives.

Equifinality of Open Systems. In mechanistic systems there is a direct cause-and effect relationship between the initial conditions and the final state. Biological and social systems operate differently. Equifinality suggests that certain results may be achieved with different initial conditions and in different ways. This view suggests that social organizations can accomplish their objectives with diverse inputs and with varying internal activities (conversion processes).

Figure 5.1. General model of organization as an open system. It is important for the adult learner of organization and management to recognize that the developing body of knowledge and applications of the systems approach to complex organizations

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is but a part of the broad trend in many of the physical and social sciences and that this field is part of a pervasive stream of thought. Furthermore, understanding that organization theory can be put in the context of general systems theory allows for growing community of interest and understanding with widely diverse disciplines. We will now look more closely at the direct relationship between the systems approach and organization theory. SYSTEMS APPROACH AND ORGANIZATION THEORY Traditional organization theory used a highly structured, closed-system approach. Modern theory has moved toward the open-system approach. The distinctive qualities of modern organization theory are its conceptual-analytical base, its reliance on empirical research data, and, above all, its synthesizing, integrating nature. These qualities are framed in a philosophy which accepts the premise that the only meaningful way to study organization is a system.12 The historical roots of systems thinking related to organization and management go back many years. Mary Parker Follett, writing at the time of the classical management theorists, expressed many views indicative of a systems approach. She considered the psychological and sociological aspects of management, described management as a social process, and viewed the organization as a social system.13 Chester Barnard was one of the first management writers to utilize the systems approach.14 Herbert Simon and his associates viewed the organization as a complex system of decision-making processes. Simon has ranged widely in seeking new disciplinary knowledge to integrate into his organization theories. However, the one broad consistency in both his research and his writings has been the utilization of the systems approach. The term systems is being used more and more to refer to methods of scientific analysis that are particularly adapted to the unraveling of complexity.15 He not only emphasizes this approach for the behavioral view of organizations but also stresses its importance in management science. The systems approach has been advocated by a number of other writers in management science. Churchman and his associates were among the earliest to emphasize this view. The comprehensiveness of O.R.s aim is an example of a systems approach, since system implies an interconnected complex functionally related components. Thus a business organization is a social or man-machine system.16 The systems approach has been adopted and utilized in management science. In the earlier approaches the models typically used were closed. More recently, techniques such as decision analysis have taken a more open-systems approach.

12

William G. Scott and Terence R. Mitchell, Organization Theory, rev. ed., Richard D. Irwin, Inc., Homewood, Ill., 1972, p. 55. 13 H. C. Metcalf and Lyndall Urwick (eds.), Dynamic Administration: The Collected Papers of Mary Parker Follett, Harper and Row, Publishers, New York, 1941. 14 Chester I. Barnard, The Function of the Executive, Harvard University Press, Cambridge, Mass., 1938. 15 Herbert A. Simon, Approaching the Theory of Management, in Harold Koontz (ed.), Toward a Unified Theory of Management, McGraw-Hill Book Co., New York, 1964, pp. 82-83. 16 C. West Churchman, Russell I Ackoff, and E. Leonard Arnoff, Introduction to Operations Research, John Wiley & Sons, Inc., New York, 1957, p. 7.

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Sociologist George Homans uses systems concepts as a basis for his empirical research on social groups. He developed a model of social systems which can serve as an appropriate basis for small groups and also for larger organizations.17 In his view, an organization is comprised of an external environmental system and an internal system of relationships which are mutually interdependent. There are three elements in a social system. Activities are the tasks which people perform. Interactions occur between people in the performance of these tasks, and sentiments develop between people. These elements are mutually reinforcing; i.e., joint activities lead to interactions and common sentiments. Philip Selznick utilizes structural functional analysis and the systems approach in his studies of organizations. The institutional leader is concerned with the adaptation of the organization to its external systems. The organization is a dynamic system, constantly changing and adapting to internal and external pressures, and is in a continual process of evolution. The organization is a formal system influenced by the internal social structure and subject to the pressure of an institutional environment. Cooperative systems are constituted of individuals interacting as wholes in relation to a formal system of coordination. The concrete structure is therefore a resultant of the reciprocal influences of the formal and informal aspects of organization. Furthermore, this structure is itself a totality, an adaptive organism reacting to influences upon it from an external environment.18 Selznick used this systems frame of reference for empirical research on governmental agencies and other complex organizations. The systems approach has also been used in other countries. Miller points out that Alexander Bogdanov, the Russian philosopher, developed a theory of tektology or universal organization science in 1912 which foreshadowed general systems theory and used many of the same concepts as modern systems theorists.19 In England the organizational researchers at Tavistock Institute of Human Relations in London have viewed the organization as a sociotechnical systems with a structuring and integration of human activities around various technologies toward the accomplishment of certain goals.20 Burns and Stalker made substantial use of systems views in setting forth their concepts of mechanistic and substantial use of systems views in setting forth their concepts of mechanistic and organic managerial systems.21 In France, Michel Crozier and his associates have used a comprehensive systems approach to investigate complex governmental relationships.22 The systems approach has also been adopted by social psychologists as a basis for studying organizations. Using open-systems theory as a general conceptual scheme, Katz and Kahn present a
17 18

George C. Homans, The Human Group, Harcourt, Brace & World, Inc., New York, 1950. Philip Selznick, Foundations of the Theory of Organization, American Sociological Review, February 1948, pp. 25-35. 19 Robert F. Miller, The New Science of Administration in the USSR, Administrative Science Quarterly, September 1971, pp. 249-250; and George Gorelik, Reemergence of Bogdanovs Tektology in Soviet Studies of Organization, Academy of Management Review, June 1975, pp. 345-357. 20 F. E. Emery and E. L. Trist, Socio-technical Systems, in C. West Churchman and Michael Verhulst (eds.), Management Sciences: Models and Techniques, Pergamon Press, New York, 1960, vol. 2, pp. 83-97; A. K. Rice, The Enterprise and Its Environment, Tavistock Publications, London, 1963; and P. G. Herst, Socio-Technical Design, Tavistock Publications, London, 1974. 21 Tom Burns and G. M. Stalker, The Management of Innovation, Tavistock Publications, London, 1961. 22 Michel Crozier and Jean-Claude Thoenig, The Regulation of Complex Organized Systems, Administrative Science Quarterly, December 1976, pp. 547-570.

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comprehensive theory of organization.23 They suggest that the psychological approach has generally ignored or has not dealt effectively with the facts of structure and social organization, and they use systems concepts to develop an integrated model. There are numerous examples of the utilization of the systems approach at operational levels. For example, the trend toward automation involves implementation of these ideas. Automation suggests a self-contained system with inputs, outputs, and a mechanism of control. The systems approach has been utilized as a basis of organization for many of our advanced defense and space programs. Program management is geared to changing managerial requirements in research, development, procurement, and utilization. With the new, complex programs such as ballistic missiles and advanced space programs it became impossible to think of individual segments or parts of the program as separate entities, and it was necessary to move to a broader systems approach.24 In many other types of governmental projects, which require the integration of many agencies and activities--transportation problems, pollution control, and urban renewal, for example-the systems approach is being used. The development of planning-programming-budgeting systems (PPBS) represents one of the most important and comprehensive examples of the application of the systems approach to the management of complex organizations. Essentially, PPBS is a systematic approach that attempts to establish goals, develop programs for their accomplishment, consider the costs and benefits of various alternative approaches, and use a budgetary process that reflects program activities over the long run. PPBS was first developed by the federal government and is currently being used by numerous state and local government agencies. These examples of the trend in adapting the systems approach to modern organization theory and management practice are by no means exhaustive: they merely illustrate current developments. However, they are sufficient to indicate that increasing attention is being given to the study of organizations as complex systems. But on one thing all the varied schools of organizational analysis now seemed to be agreed: Organizations are systems--indeed, they are open systems.25 Reference to other scientific disciplines can help us understand what is occurring in the field of organization theory. Major changes in all fields of science occur with the development of new conceptual schemes or paradigms which provide a different view and a new start.26 Systems theory provides a new paradigm for the study or organizations and their management, a basis for thinking of the organization as an open system in interaction with its environment. It also helps us understand the interrelationships between the major components of an organization--its goals, technology, structure, and psychosocial relationships. It provides an improved frame of reference for managerial practice. ORGANIZATION AS AN OPEN SYSTEM
23 24

Katz and Kahn, op. cit. For a discussion of the evolution of this approach in military and space programs, see Fremont E. Kast and James E. Rosenzweig, Organization and Management of Space Programs, in Frederick I. Ordway, III (ed.), Advances in Space Science and Technology, Academic Press, Inc., New York, 1965, vol. 7, pp. 273-364. 25 Charles Perrow, The Short and Glorious History of Organization Theory, Organizational Dynamics, Summer 1973, p. 11. 26 Thomas S. Kuhn, The Structure of Scientific Revolution, 2d ed., University of Chicago Press, Chicago, 1970.

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The organization can be considered in terms of a general open-system model, as in Figure 5.2. The open system is in continual interaction with its environment and achieves a steady state or dynamic equilibrium while still retaining the capacity for work or energy transformation. The survival of the system, in effect, would not be possible without continuous inflow, transformation, and outflow. In the biological or social system this is a continuous recycling process. The system must receive sufficient input of resources to maintain its operations and also to export the transformed resources to the environment in sufficient quantity to continue the cycle. Every surviving system must provide some output acceptable usually to a collateral or supra-system.27

27

F. Kenneth Berrien, A General Systems Approach to Organizations, in Marvin D. Dunnette (ed.), Handbook of Industrial and Organizational Psychology, Rand McNally College Publishing Company, Chicago, 1976, p. 45.

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INPUTS Material Money Human effort

ORGANIZATION Transforming resource and adding utility

OUTPUTS Products Services Human Information satisfaction Organizational survival and growth Social benefit

Figure 5.2. The organization as a transformation system. For example, the business organization receives inputs from the society in the form of people, material, money, and information; it transforms these into outputs of products, services, and rewards to the organizational members sufficiently large to maintain their participation. For the business enterprise, money and the market provide a mechanism for recycling of resources between the firm and its environment. The same kind of analysis can be made for all types of social organizations. Although we will use the open system perspective throughout this book, we should recognize that the concept of open/closed is a matter of degree. In an absolute sense, all systems are open or closed depending upon the point of reference. Thus, all systems are closed in some degree from external forces. The systems boundaries always prevent some environmental factors from impacting upon the system; it provides for selective inputs. We will discuss this issue of degrees of openness and closedness more completely in Chapter 6. AN INTEGRATED SYSTEMS VIEW OF ORGANIZATIONS We view the organization as an open, sociotechnical system composed of a number of subsystems, as illustrated in Figure 5.3. Under this view an organization is not simply a technical or a social system. Rather, it is the structuring and integrating of human activities around various technologies. The technologies affect the types of inputs into the organization, the nature of the transformation processes, and the outputs from the system. However, the social system determines the effectiveness and efficiency of the utilization of the technology. The internal organization can be viewed as composed of several major subsystems. The organizational goals and values are one of the more important of these subsystems. The organization takes many of its values from the broader sociocultural environment. A basic premise is that the organization as a subsystem of the society must accomplish certain goals which are determined by the broader system. The organization performs a function for society, and if it is to be successful in receiving inputs, it must conform to social requirements. The technical subsystem refers to the knowledge required for the performance of tasks, including the techniques used in the transformation of inputs into outputs. It is determined by the task requirements of the organization and varies depending upon the particular activities. The technology for manufacturing automobiles differs significantly from that used in an oil refinery or an

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electronics company. Similarly, the task requirements and technology in a hospital are different from those in a university. The technical subsystem is shaped by the specialization of knowledge and skills required, the types of machinery and equipment involved, and the layout of facilities. The technology affects the organizations structure as well as its psychosocial subsystem. Every organization has a psychosocial subsystem which is composed of individuals and groups in interaction. It consists of individual behavior and motivation, status and role relationships, group dynamics, and influence systems. It is also affected by sentiments, values, attitudes, expectations, and aspirations of the people in the organization. These forces set the organizational climate within which the human participants perform their roles and activities. We would therefore expect psychosocial systems to differ significantly among various organizations. Certainly the climate for the person on the assembly line is different from that of the scientists in the laboratory or the doctor in the hospital.

Structure involves the ways in which the tasks of the organization are divided (differentiation) and coordinated (integration). In the formal sense, structure is set forth by the organization charts, by position and job descriptions, and by rules and procedures. It is also concerned with patterns of authority, communication, and work flow. The organizations structure provides for formalization of relationships between the technical and the psychosocial subsystems. However, it should be emphasized that this linkage is by no means complete and that many interactions and relationships occur between the technical and psychosocial subsystems which bypass the formal structure.
The managerial subsystem spans the entire organization by relating the organization to its environment, setting the goals, developing comprehensive, strategic, and operational plans, designing the structure, and establishing control processes.

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Environmental System
Goals & Values Subsystem: Culture Philosophy Overall goals Group goals Individual goals Technical Subsystem: Knowledge Techniques Facilities Equipment

Managerial Subsystem Goal Setting Planning Assembling Resources Organizing Implementing Controlling

Psychosocial System: Human resources Attitudes Perceptions Motivation Group dynamics Leadership Communication Interpersonal relations

Structural Subsystem: Tasks Work flow Work groups Authority Information flow Procedures Rules

Figure 5.3. The organizational system. Figure 5.3 provides one way of viewing the organization. The goals and values, as well as the technical, structural, psychosocial, and managerial subsystems, are shown as integral parts of the overall organization. This figure is an aid to understanding the evolution of organization theory. Traditional management theory emphasized the structural and managerial subsystems and was concerned with developing principles. The human relationists and behavioral scientists emphasized the psychosocial subsystem and focused their attention on motivation, group dynamics, and other related factors. The management science school emphasized the technical subsystem and methods for quantifying decision-making and control processes. Thus, each approach to organization and management has tended to emphasize particular subsystems, with little recognition of the importance of the others. The modern approach views the organization as an open, sociotechnical system and considers all the primary subsystems and their interactions.

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