Systems Theory

Many people are interested in understanding what goes on in organizations in order to

improve their effectiveness and efficiency. But to help an organization function better, one needs to
have a way of thinking about what an organization is and about how to influence it. General
Systems Theory provides a simple, but powerful, way of viewing organizations.

One of the clearest statements relating Systems Theory and organizational behavior comes
from Carroll and Tosi’s book, Organizational Behavior: A system is a set of interrelated components
surrounded by a boundary which absorb

inputs from other systems and transforms them into outputs that serve a function in
other systems. Complex organizations are open systems, interacting with an outside
environment and adjusting to it. A business organization must react to changes in the
environments from which it takes its inputs or resources (e.g., suppliers of raw
materials), and to changes in the environments in which it delivers outputs or goods
and services

This definition outlines several key features of a systems view of organizations: various
components, a boundary, the transformation of inputs into outputs, interrelatedness, and adaptation.
These key ideas provide a powerful insight into the design and management of organizations of all
kinds. They suggest that we must be aware of the various parts of an organization. This includes
primarily the people in the organization on individual, small group, and large group levels, but also a
more abstract view of the functions that those various groups perform. This functional perspective

helps us to see how each individual or group is contributing to the overall goals of the organization.
The boundary is important in that our definition of it identifies who a member of the organization is
and who is not, and our management of the boundary determines what comes into and what goes out
of the organization both in terms of people and products. The transformation process defines what
we add of value to the inputs we bring into the organization and, in so doing, defines what the
marketplace will receive as a result of the organization’s efforts. Also critical to a useful
understanding of organizations is insight into the ways in which the various components are
interrelated and affect each other.

Finally, unless the organization can manage its boundary in a way that allows it to adapt in a
timely fashion to changes taking place around it, the organization may become first, old-fashioned,
then, obsolete, and finally, useless. By adaptation, I do not mean that organizations are just passive
reactors. They can also have some influence over their related environments by means of
bargaining, advertising, buying power, political lobbies, and so on. Many organizations attempt to
create the kind of environment around them that will support what they do. There is a limit to most
organizations’ abilities to do this, however. Wise managers are able to recognize the extremes of
passive reaction to environmental fluctuations and stubborn resistance in the face of fundamental
environmental changes and are able to choose a middle ground that both influences the environment
and allows the organization to fit better in it.
This definition also implies a decidedly organic and functional approach to the study of
organizations. That is, the key features create a view similar to that of a living organism that asks,
“How does an organization add value to society?” Organizational systems can be viewed as being
made up of several subsystems which taken together do the work of the entire system. We can name
these subsystems after the functions which they serve in the organization. They include the
Management subsystem, the Adaptive subsystem, the Boundary Spanning In subsystem, the
Production subsystem, the Boundary Spanning Out subsystem, and the Maintenance subsystem. A
careful consideration of each of these subsystems can reveal much about the workings and failings
of an organization. As you consider how each of these subsystems can reveal much about the
workings and failings of an organization, note that their boundaries do not necessarily coincide with
the boundaries listed on many organizational charts. Some charted units in organizations perform
more than one of the functions listed below. It is more important to understand how each of the
following functions is performed than to align them clearly with distinct organizational units. In this
sense, these subsystems are not the same as organizational units.