Modern Organizational Theories – Systems Theory

The Systems Theory was developed in the early 60s. With a conceptual
and analytical base, it attaches a great significance on empirical
research data.

In simple terms, the theory considers organizations as systems. ”A

system is an organized or complex whole – an assemblage
or combination of things or parts which form a complex unitary whole”.

The different parts of the system are called sub-systems, which are
interrelated. Further, various sub-systems are arranged according to a
scheme so that the complete system is more than just a sum of its parts.

This ensures the efficient functioning of the system as a whole. Also,

every system has a boundary which separates it from its environment.

Organization and its Environment

There are two types of systems:

1. Open Systems – which interact with their environment. Also, all

living systems are open systems.
2. Closed Systems – which have no interaction with their environment.
Also, all non-living systems are closed systems.
An organization is an Open System as it continuously interacts with its
environment. Therefore, in order to understand an organization, one
must identify its boundary. We can understand an organization’s
interaction with its environment as an input-output model.

Learn more about NeoClassical Organisation Theory here in detail.

Inputs are energy, information, and materials which the organization
takes from the environment. It then transforms then with the help of
people and machines and supplies the output to the environment.

Further, the reaction of the environment to the output is the feedback

mechanism using which the organization can evaluate and correct itself.

An organization has several sub-systems like technical sub-system,

social sub-system, etc. Some of these sub-systems are independent and
don’t need interlinking through any process.

Hence, the Systems Theory involves the study of an organization and

identifies:

1. Its strategic parts

2. The nature of the interdependency between these parts
3. If there are any processes or systems which link the parts together
and
4. The list of goals that the system is trying to accomplish.
Main Parts of an Organization System
The primary parts of an organization system are as follows:

1. Individual – An individual and his personality is the basic part of the

system. Every individual’s attitude and motives determine his
expectation when he participates in the organization system.
2. Formal Organization – A formal organization is the interrelated
pattern of jobs which are designed to regulate the actions of
individuals and other resources in the organization. Therefore, the
individual must perform his job and the organization must fulfill his
expectations on successful completion of the job. Usually, there is
incongruency between the goals of the organization and those of its
members.
3. Informal Organization – In any organization, an individual interacts
significantly with the informal group to which he belongs. This
informal group, typically, demands the individual to conform to its
laid-down behavior patterns. The individual conforms in order to
accomplish his goals by associating with the informal group. Further,
since the two interact, they modify each other’s behavior.
4. Status and Roles – In every organization, individuals are expected to
play certain roles. These roles determine their status. There are
times when the demands on an individual from the formal and
informal organizations contradict each other. At such times, there is
a role conflict. Therefore, it is necessary that the two roles fuse
together. This fusion process acts to wield divergent elements
together in order to preserve the integrity of the organization.
5. Physical Setting – Another important component is the physical
surroundings in which an individual performs a job. Therefore, it is
important to carefully examine the interaction in the complex man-
machine system. One cannot approach the problem in a purely
 technical manner and needs to consider the social, psychological, as
well as physiological conditions of members. Only then can one fit
the machines to men.
An interconnection between the sub-systems
The sub-systems of an organization are interconnected through various
processes as described below:

1. Communication – An effective mechanism which links all the

organizational sub-systems together. It involves receiving messages
from the external environment and sharing this message within the
organization. It also works as a control and coordination mechanism
to link the decision centers in the system.
2. Decision-making – This is another important process for linking
various parts in an organization. In fact, the decision to produce
depends on the interaction between individuals and the demands of
the organization. Hence, the decision of an individual to participate
in production depends on the demands and rewards of the
organization.
3. Balance – Balance is an equilibrating mechanism which allows the
different parts of the system to stay in a harmonious and structured
relationship with each other. It helps in ensuring integrity in the face
of a rapidly changing environment.

Contributions of the Systems Theory

 The Systems Theory offers an open-system view of an organization
and recognizes its environmental interface.
 The theory is dynamic and adaptive.
 It adopts a multi-level and multi-dimensional approach. Therefore, it
considers both macro and micro aspects.
 Further, it draws from several disciplines like sociology, economics,
psychology, engineering, etc.
 It is descriptive and not prescriptive or normative, Further, it is
probabilistic and not deterministic and places a lot of emphasis on
lateral rather than vertical relationships.
 Cybernetics is another significant contribution to the Systems
Theory. Cybernetics is the science of communication and control in a
man-machine system.
Criticism of the Systems Theory

 The Systems Organizational Theory is not unified but an

amalgamation of several theories like the systems theory,
contingency theory, decision theory, etc.
 It is not really modern, but a synthesis of the research contributions
of earlier theories.
 This theory is too abstract to be of practical use. It does not specify
the precise relationships between the organization and the social
system.
 It does not offer a framework which can be applied to all
organizations.