Systems Approach

- A Modern Organizational Theoretical Approach

A quote to start with-

� “You think that because you understand one that you must understand two because one and one make two. But you forget that you must also understand and.”

-Sufi Teaching Story (quoted in Meadows 2008)

Systems approach in Management

� Most modern approaches to management have integrated and expanded the key concepts developed within the classical approaches after 1950.

� Modern approach is studied in 4 phases: I.  Quantitative approach II.  System approach III.  Contingency approach IV.  Excellence approach

What is a system?

� A system is a collection of parts that interacts with each other to produce outcomes that are more than the sum of the parts alone.

� Or, the term ‘System’ may be defined as a set

of interrelated and interacting components assembled in a particular sequence so as to produce some results.

4 Elements to a system:

� Parts � Connections � Functions � Boundary

Some examples

� For eg. A tree is a system of leaves, branches, trunk, fruits that together interact through photosynthesis and other processes to create outcomes far larger than what any single part could create.

� The tree itself is a part of a larger system like a forest or the ecosystem.

� Human bodies � Neighbourhood Cities Regions Nation � A basketball team

Types of systems

Closed System- Self Contained & ignores the effect on environment on a system.

Little applicability to study of organizations.

Open System-

Recognizes dynamic interaction of the system with environment.

Used to explain organization systems.

Evolution of systems perspective

• Closed

1900-1930

• Closed

1930-1960

• Open

1960-1975

• Open

1975-Present

Basic Open System

Inputs Transformation Process Outputs

System Environment

Environment

An Industrial Organization as an Open System

Characteristics of an Open System �  Obtaining Inputs/energy- Dominos draws customers

and materials from outside. �  Throughputs- Input is transformed into a new product.

Ingredients being made into a food item. �  Outputs- Service or good given to customers, such as

a complete pizza. �  Systems as a cycle of events- Input-output cycle.

Pizza makes customer happy which makes him buy more and the cycle repeats. Ensuring growth.

�  Negative Entropy- Entropy- Disintegrate or run down. A closed system, due to no acquaintance with the environment will run down overtime. Open system characterized by negative entropy.

Dominos must use fresh inputs, as such is the nature of the business, to grow.

Characteristics cont. �  Information Input, Negative Feedback - Inputs

include information of the environment. Outputs contain information of the company w.r.t. the environment.

�  Steady State- Energy can be imported to arrest entropy, and thus maintain some constancy in energy exchange. For Dominos, they have a whole floor of innovation in their Brisbane office.

�  Differentiation- Open system organisations move toward the multiplication and elaboration of more specialised functional roles . Dominos have achieved this by introducing regulated feedback mechanisms, such as customer surveys and market research.

�  Integration and Coordination-As differentiation proceeds, it is countered by processes that bring the system together for unified functioning.

�  Dominos achieved coordination-pizza tracking system as a result of market research and coordinates the process from the time of input of the customers order, the processing or preparation of the pizza, and the export or delivery to the customer.

�  Equifinality- Ability of an organisation to move toward a final state.

It is unclear from the case study what the final state of Dominos will be, as it is not known what regulatory mechanisms, if any, control the organisation’s operations. However, it is clear that they have a goal, and are on target to reach that goal.

Importance of the Systems Perspective � For managers- permits seeing the

organization as a whole with interdependent parts.

� Prevents lower-level managers from viewing their jobs as static or isolated.

� Encourages managers to identify and understand the environment.

� More effective problem solving � Satisfaction of all stakeholders

Limitations of the Systems Perspective � Abstract- One thing to talk about inter-

dependence, and another to talk about the degree of the same, if a particular action is taken.

� Has only an intellectual appeal and cannot be applied to practical situations.

�  It doesn’t offer any tool or technique for analysis.

Value to managers

� Managers using systems approach are less prone to look for immediate results.

� Less likely to take decisions that trade off organisations long term health for looking good in short term.

� Managers awareness of interdependency of organisational activities is increased.

� Applicable when end goals are either vague or defy measurement.

A Case Study

Case Study on General Motors

� General motors, from its inception through the early 1960s, operated as if it were basically a closed system . Management decided on the products it wanted to sell, produced those products, and offered them to customers. GM assumed that whatever it made would sell, and for decades it was right. Government was generally benign, and consumer-advocate groups were non-existent or had little influence. GM virtually ignored its environment, for the most part, because its executives saw the environment as having almost no impact on the company’s performance.

Contd. ..

� While some critics of GM still attack the firm for being too insulated from the environment, GM has certainly become more open. The actions of consumer groups, stockholders, government regulators, and foreign competition have forced GM to interact with, and be more responsive to, its environment. So while it may not be the open model for an open system, GM is more open today than it was 50 years ago.

Questions:

� How could GM survive as a closed organization initially?

� Why did GM feel the need to become open to the environment?

� Give one example of environment interaction of GM.

How could GM survive as a closed organization initially?

�  At the turn of the 20th century there were fewer than 8,000 automobiles in America, many of them powered by steam or electricity, others had gasoline engines. An unexpected turnout at the first New York Auto Show in 1900, showed the magnitude of the public’s fascination with the automobile.

�  With horse drawn vehicles initially and then automobiles, GM became the leading manufacturer.

�  Commitment to innovation brought out great new automobiles.

Why did GM feel the need to become open to the environment?

� Closed systems can hamper growth since the flow of information stays within the system and has no chance to interact with or build on knowledge from the outer environment.

� The 60s and 70s were a time of new challenges and great change. Environmental concerns, increased as prices and foreign competition led to an unprecedented downsizing of vehicles across all GM vehicle lines.

�  Increased competition

Give one example of environment interaction of GM. � GM profits struggled from 1981 to 1983 following

the late 1970s and early 1980s recession. � GM profits rebounded during the 1980s.

Because- � After careful screening of the environment which

included the innovations of other companies and demands of consumers GM had downsized its product line and invested heavily in automated manufacturing.

Conclusion

�  It’s not easy for the management to consider the pros and cons of open and closed organizations and to find the right mix.

� The solution is to adjust the organization according to the situation: u  in periods of changes organizations are in need of

more flexibility and innovation – OPEN u  in quiet phases, when it comes to the realization of

certain projects - CLOSED