Systems Theory of Management

Cite this article as:"Systems Theory of Management," in The Business Professor, updated April 2, 2020, last accessed September 20, 2020, https://thebusinessprofessor.com/lesson/systems-theory-of-management/.

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What is the Systems Approach to Management?

The Systems Approach to management theory, commonly viewed as the foundation of organizational development, views the organization as an open system made up of interrelated and inter-dependent parts that interact as sub-systems.

Thus the organization comprises a unified singular system made up of these subsystems.

For example, a firm is a system that may be composed of sub-systems such as production, marketing, finance, accounting and so on.
As such, the various sub-systems should be studied in their inter- relationships rather, than in isolation from each other.

The system as a whole is affected by internal elements (aspects of the sub-units) and external elements. It is responsive to forces from the external environment.

The system is considered open, as organizations receive varied forms of inputs from other systems. For example, a company receives supplies, information, raw materials, etc. These inputs are converted to outputs that affect other systems.
Generally, the systems approach assesses the overall effectiveness of the system rather than the effectiveness of the sub-systems. This allows for the application of system concepts, across organizational levels in the organization – rather than only focusing upon the objectives and performances of different departments (sub­systems).

Organizational success depends upon interaction and interdependence between the subsystems, synergy between the sub-systems, and interaction between internal components (closed system) and external components (internal system).

The systems approach implies that decisions and actions in one organizational area will affect other areas. For example, if the purchasing department doesn’t acquire the right quantity and quality of inputs, the production department won’t be able to do its job.

This approach recognizes that an organization relies on the environment for essential inputs. Further, the environment serves an outlet for its outputs.

What are the primary Characteristics of an Organizational System?

The following are the chief characteristics of the System Approach:

  • Sub-Systems – Each organization is a system made up of a combination of many sub-systems. These sub-systems are inter-related.
  • Holism – Each sub-system works together to make up a single whole system. Decisions made in any subsystem affect the entire system.
  • Synergy – The collective output of the whole system is greater than the sum of output of its sub-systems.
  • Closed and Open Systems – The whole organization is an open system made up of a combination of open and closed sub-systems.
  • System Boundary – The organization is separate from the external environment made up of other systems.

What are the components of an Organizational System?

The system approach envisions the organization as made up five components:

  • Inputs – Raw Materials, Human Resources, Capital, Information, Technology
  • A Transformational Process – Employee Work Activities, Management Activities, Operations Methods
  • Outputs – Products or Services, Financial Results, Information, Human Results
  • Feedback – Results from outputs influence inputs.
  • The Environment – These components make up internal and external factors that affect the system.

What are Closed and Open Management Systems?

An organization is made up of closed systems and open systems. Closed systems are the internal sub-units of the organization that do not interact with the external environment. Open systems are internal sub-units that interact with other systems (or sub-units within other systems) that are outside of the organization.

In effect, all organizations are open systems.

What are General and Specific Management Systems?

The general systems approach to management is mainly concerned with formal organizations and the concepts are relating to technique of sociology, psychology and philosophy.
The specific management system includes the analysis of organizational structure, information, planning and control mechanism and job design, etc.

Advantages and Disadvantages of a Systems Approach

The advantages of the systems approach include:

  • It assists in studying the functions of complex organizations
  • It is probabilistic rather than deterministic.
  • It has been utilized as the base for the new kinds of organizations like project management organization.
  • It is possible to bring out the inter-relations in various functions like planning, organizing, directing and controlling.

Negative attributes of the systems approach include:

  • This approach is somewhat abstract and vague.
  • It can be difficult to apply to large and complex organizations.
  • It does not provide any tool and technique for managers.
  • It is not a prescriptive management theory, as it does not specify tools and techniques for practicing managers
  • It does not address power and social inequalities and their causes.
  • It does not specify the nature of interactions and interdependencies.

Who are the Primary Contributors to Systems Theory?

Chester Bernard introduced the concept of Cooperative Systems in his book, Functions of an Executive (1938).

Economist, Herbert Simon, introduced in his book, Administrative Behavior (1947), the concept of systems process in decision-making within organizations. Notably, he introduced concepts of bounded rationality and satisfying.

Biologist, Ludwig von Bertalanffy, introduced principles of “General Systems” theory in 1950.

Other contributors include: Lawrence J. Henderson, W.G. Scott, Deniel Katz, Robert L. Kahn, W. Buckley and J.D. Thompson.

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