Productivity Improvement

Open Systems Approach

Analysis of the organization as an open system

The environment of the organization

The organization is a productive system. It interacts with its environment, drawing certain inputs from the environment and converting these to outputs that are offered to the environment. The attainment of its preferred state is dependent on the efficiency with which the firm carries out this production process.

In order to analyze a system it is necessary to establish the relationships between the system and its environment. The organization's environment is itself a higher order system composed of its own subsystems. The four major subsystems in the environment are

  • the economic system;
  • the technological system;
  • the socio-cultural system;
  • the politico-legal system.

To analyze the organization as a system it is necessary to

  • establish the relationships between the firm and these external systems, and
  • establish the relationships between the firm and its environment it is necessary for us to study at least the major factors which influence these four environmental subsystems.

The influence of these major factors must be taken into account when studying the firm and its interaction with the environment.

The interrelated and interdependent parts of the firm

We have stated in our definition of a system that a system contains interrelated and interdependent parts. Why is this necessary?

  • The environment within which the system operates is so complex that the system as a whole may not be able to cope with these complexities in seeking to attain its preferred state. The system therefore subdivides itself into parts (subsystems) and these subsystems then specialize in coping with certain variables in the environment.
  • If the specialized task is still too complex the subsystems may themselves be further divided many times until a whole hierarchy of subsystems develop under one major subsystem.
    The personnel department in a large organization could serve as an example, with its variety of divisions paying specialized attention to functions such as recruitment, training, industrial relations, housing, benefits, salaries, etc.
    Obviously if the system as a whole can cope with some aspect better than the part, then there is no need for that part.
Open systems fig. 4

How does the firm, as a system, subdivide to cope with its environment?

As a productive system the firm depends on its environment to provide inputs which it transforms to produce outputs which in turn it depends on the environment to accept. The inputs from and outputs to the environment come from and go to different subsystems in the environment:

In order to cope with the environment the firm must therefore subdivide into four major subsystems:

  • A commercial sector which interacts primarily with the economic system performing the purchasing and marketing function of the firm.
  • A technical sector which concentrates primarily on the transformation processes within the firm. This sector will also interact with the technological system of the environment.
  • A personnel sector which interacts primarily with the sociocultural system performing the personnel and public relations function of the firm.
  • A controller sector which concentrates primarily an the flow of information within the firm. This sector also interacts with the politico-legal system.

Open systems fig. 5

The preferred state of the firm

The firm, as a system, has a preferred state. We have seen that the firm organizes itself into sectors in order to attain this preferred state. These sectors are systems themselves, and left to their own resources will develop their own preferred states which may be in conflict with that of another sector and with the preferred state of the system itself. We therefore have two problems to solve:

  • What part of the firm determines the system's preferred state and determines how this preferred state is to be reached?
  • What part of the firm ensures that the four sectors seek preferred states which are in accordance with the preferred state of the system as a whole, and are in congruence with the preferred states of the other sectors within the system?

This function of the system is performed by a fifth and dominant sector of the firm - senior management. The senior management of the firm interacts with all sectors of the environment, concentrating on the most important influences, which the environment has, or may have, on the future of the firm.

Open systems fig. 6

Management also considers, and deals with, the environment as a whole or as a total system.

On the basis of these interactions and interactions with the other four sectors of the firm, the senior management sector determines the preferred state of the firm. When this overall preferred state is determined it will be transmitted to the other sectors of the firm, who must then adjust their structure and preferred states to adapt to it.

Next: Practical guidelines in using the systems approach