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System Theory

management, system, system theory, administration, organizing, managers, managerial skills

In the 1950s, the expansion Of the economy, the rapid growth of the middle class, the proliferation of larger and more complex corporations, and advances in communication and travel introduced new problems that had to be addressed by managers. At the same time, the Ford Foundation and Carnegie Corporation issued reports suggesting that business education in the United States was inadequate for developing managers because it focused more on vocational training than on organizational problem solving. As a result, management theorists and practitioners began to direct their attention to the question of how organizations as a whole could be made more efficient and effective.

The systems theory approach to management is based on the assumptions and ideas of a biologist named Ludwig von Bertalanffy. Von Bertalanffy approached the field of science from the perspective that each discipline studies forms of systems that are composed of interrelated subsystems. Basically, a system is an interrelated set of elements functioning as a whole. Examples of systems would be plant cells, a clock, a hospital, or the human body. In management theory, the system is the organization composed of subsystems such as departments or divisions. Von Bertalanffy emphasized that the survival or failure of the system was dependent on the interrelation of subsystems 'and their contribution to the overall purpose of the system. Hence, activities in a production department will be determined largely by the sales department, which in turn will be dependent on budget allocations from the accounting department, which in turn is dependent on the cost efficiency of the production department, and so forth. The implication is that no department is fully independent of another; it cannot act independently or make decisions without considering their effect on other departments.

Systems can be further classified as open or closed. A closed system is one that does not rely on resources from the environment to survive. In order to survive, a closed system must have internal resources to transform into goods and services which are then consumed by members of the organization. Very few organizations meet the criteria of a closed system. Monasteries situated in remote mountain ranges perhaps come closest to being closed systems, but even monasteries must obtain inputs from the environment in the form of new members. Yet many earlier managerial theories treated the organization as if it were a closed system. The principles developed to solve problems were based on the assumption that the environment was static and thus focused on ways to make the organization more efficient through changes in internal design.

An open system is one that must continually seek resources from the environment in order to survive. An open system obtains information, financial, material, and human resources from the environment. The transformed resources must then be'exported to the environment. Organizations characterize an open system in that resources must be purchased from outside suppliers, and customers must be willing to purchase the goods or services transformed by the production process of the organization in order for the organization to survive.
The introduction of von Bertalanffy's systems ideas to the subject of managerial theory spawned increased interest in their application to managerial problems. Efforts to enlarge on the subject of subsystems were conducted by Katz and Kahn, who distinguished the five types of formal organization subsystems:

•Production. A production subsystem produces a good or service to be exported to customers in the environment. The production subsystem focuses primarily on the transformation of inputs, such as raw materials, and includes employees who work on the production line as well as those in inventory control.
•Maintenance. The maintenance subsystem is concerned with the stable operation of activities in the organization. Here, the focus is on employee selection procedures, cleaning and maintenance of buildings and machinery, and quality control.
•Boundary. Boundary subsystems, or boundary-spanning subsystems, handle transactions involving the procurement and disposal of necessary resources. These subsystems work in conjunction with the production subsystem but address issues concerning methods of obtaining resources from suppliers and distributing goods to customers. Thus, boundary subsystems work directly with individuals and organizations in the environment. Purchasing departments and marketing departments represent boundary subsystems.
•Adaptive. The responsibility to oversee organizational planning and change rests with adaptive subsystems. Members of adaptive subsystems scan the environment to obtain information about technological developments, competitor activities, and regulatory constraints. Strategic-planning departments and research and development units constitute adaptive subsystems.
•Managerial. The managerial subsystem oversees the activities of the other subsystems, placing its emphasis on coordinating the subsystems, resolving conflicts, establishing strategies, and directing the other subsystems toward system-level goals. Boards of directors and executive committees are examples of managerial subsystems.

Control within the system is obtained through feedback. Feedback is information that is received about activities in the organization. As the system is functioning, information about activities is fed back to key decision makers who then can invoke measures to correct errors or inform other subsystems about the status of activities throughout the organization.

The implication of systems theory for managers is that understanding the nature of the organization begins with a knowledge of the various factors that impinge on organizational life. Workers, technology, leaders, values, goals, and motivations do not exist in a vacuum; all these factors are integrated and affect each other, and actions taken to correct a malfunction in one subsystem must be carefully analyzed to avoid disrupting other subsystems.

Systems theory has had a major influence on the study and practice of management. Viewing an organization as a system of interdependent subsystems enables managers to comprehend more fully the implications of their actions. Indeed, the power of the systems theory framework has not been solely confined to the study of management. The disciplines of physics, biology, sociology, and mathematics have all found the principles of systems theory useful.

The contributions of systems theory to the study of management, however, are somewhat limited. First, it is primarily descriptive rather than predictive. That is, the theory provides a useful way to describe an organization, but it has had less success in predicting outcomes based on changes that occur among subsystems. Second, advocates of systems theory often find themselves mired in the same problem for which classical theorists have been criticized. Like classical theory, systems theory views all organizations as similar and thus fails to account for the role that unique contextual, organizational, and human dimensions can play in organizational outcomes.
Published: 2007-05-12
Author: Martin Hahn

About the author or the publisher
Martin Hahn PhD has received his education and degrees in Europe in organizational/industrial sociology. He grew up in South-East Asia and moved to Europe to get his tertiary education and gain experience in the fields of scientific research, radio journalism, and management consulting.

After living in Europe for 12 years, he moved to South-East again and has worked for the last 12 years as a management consultant, university lecturer, corporate trainer, and international school administrator

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