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The first lens that we will use to look at an organization is as a system. Systems theory can be traced to an Austrian biologist, Ludwig von Bertlanffy, who wrote a series of books and articles beginning in the 1940s (see Bertlanffy, 1968) about the systemic interconnections of the natural world. Living organisms and the physical environment, Bertlanffy noted, displayed interconnectedness among their various parts. Fruit trees under stress due to weather conditions such as drought or extreme heat, for example, produce less fruit in order to conserve energy. General systems theory, according to Bertlanffy, was about understanding the characteristics of these natural systems and the underlying laws that defined their interconnections. Rather than investigate only the subparts of these organisms in isolation from one another, general systems theory tried to understand how the subparts related to one another.

Katz and Kahn (1966) were among the first to adapt this perspective to organizational theory. “All social systems, including organizations,” they wrote, “consist of the patterned activities of a number of individuals” (p. 17). They argued that open systems (natural and organizational) displayed common characteristics, such as the importation of energy or inputs, a throughput or transformation process, an output, feedback, homeostasis or equilibrium, and others. Systems theorists refer to these systems as “open” versus “closed” because the system is interconnected with its environment (Kast & Rosenzweig, 1972). Most theorists emphasize, however, that the natural system metaphor for organizations can be taken too far, since “social structures are essentially contrived systems” (Katz & Kahn, 1966, p. 33). See Figure 4.1 for a visual depiction of an organizational system.

To better understand these characteristics of a system, consider an automobile factory as an example. Inputs consist of raw materials such as the engine, doors, tires, and so on (or even more fundamental inputs such as sheet metal, plastic, or glass). The factory works with these raw materials through assembly, painting, and other construction processes. The output is a functioning automobile of a certain kind with certain characteristics. The cars are sold for money, which is used to purchase more raw materials, create new car designs, open more factories, and so on. Feedback processes (such as inventory numbers, sales rates, and sales revenue) create information that is fed back into the system to ensure that the system maintains equilibrium and that it can adapt appropriately to environmental conditions.

Description

Figure 4.1 An Organization as a System

The system maintains equilibrium through market and consumer demands. For example, if cars are not being sold (for example, due to competition, economic conditions, or other environmental factors) and too much inventory exists, the factory will slow down production to adapt to these conditions. If demand is high, feedback to the factory will result in higher production rates (again adapting to what is demanded by the environment). When demand declines, without storage or conservation of resources (for example, retaining some money so that the organization can still function even when sales rates are lower than expected), the organization will cease to exist. Systems theorists call this property of systems “negative entropy,” meaning the system needs to cope with expended energy without any incoming energy to assist the system in surviving. Moreover, all of these parts and functions are internally interdependent, so that changes in one part of the system will result in changes in other parts of the system (Nadler & Tushman, 1983).

Within these systems, certain functional specialized roles and procedures exist to aid the system in functioning properly. Production workers, for example, work on a specific component of the assembly process. Managers and executives help the system’s parts to function effectively and monitor the feedback from the internal and external environment. Procedures help the system to reproduce its processes in standardized ways. The overall organizational system also consists of a variety of interconnected subsystems that depend on one another. For example, the factory depends on human resources to hire and train employees properly. The entire system depends on finance to pay employees, to provide budgets used to purchase raw materials, and to collect money from customers. These departments exist as subsystems within the overall organizational system.

Open systems thinking is the process of considering how people, processes, structures, and policies all exist in an interconnected web of relationships. Systems thinkers see the whole of an organism or organization as larger than the sum of its parts, and as systems that exist within other systems of which they are a part (Burke, 2002). Mayhew (2006) writes that systems thinking is about analyzing the organization on three levels: events, patterns, and structure. Whereas events are single occurrences of an episode, patterns are the multiple and repetitive “archetypes” (Senge, 1990) that allow events to happen in the same way time after time. These patterns exist in structures that support and reinforce them. Systems thinking, as Senge (1990) describes it, consists of seeing the interrelationship of structures and components rather than simple and “linear cause-effect chains” (p. 71). Correcting organizational problems requires systems thinking rather than simple linear thinking (A caused B to happen) in order to solve the root of the problem rather than correcting the immediate, surface-level symptoms of the problem (asking questions such as “What caused A? Are there other causes?”). In other words, it requires analyzing structures and patterns rather than isolated events.

Systems theory has been a popular approach in organizational studies because it resonates with how we understand organizations to work at the most general level. Organizations produce something—whether it is a product, such as cars or breakfast cereal, or a service, such as financial consulting or providing Internet access. Changes in the environment, such as legislative or regulatory changes, cause organizations to adapt to new rules. Poor quality inputs lead to problems in transformation processes and result in poor quality outputs. Erroneous information in the feedback process creates unnecessary or problematic changes in the system. Aspects of the system are interdependent on one another, and problems in one part of the system create problems in other parts of the system. These statements about organizational systems provide a commonsense explanation for how organizations and their subsystems seem to us to work.