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Systems thinking is the ability to see both the distinct elements of a system or situation and
the complex and changing interaction among those elements.

A system is a set of interrelated parts that function as a whole to achieve a common purpose.
An organization is a system.
Systems thinking means looking not just at discrete parts of an organizational situation, but
also at the continually changing interactions among the parts.

When managers think systemically and understand subsystem interdependence and synergy,
they can get a better handle on managing in a complex environment.

Subsystems are parts of a system that depend on one another for their functioning.

The concept of synergy says that the whole is greater than the sum of its parts. The
organization must be managed as a whole.

An important element of systems thinking is to discern circles of causality. Peter Senge,

author of The Fifth Discipline, argues that reality is made up of circles rather than straight
lines.

Understanding all the consequences of their decisions via circles of causality enables
company leaders to plan and allocate resources to warehousing as well as to advertising
to ensure stable increases in sales and profits. Without understanding system causality,
top managers would fail to understand why increasing advertising budgets could cause
inventory delays and temporarily reduce profits.
According to system thinking, if we examine the interactions of the parts in a system, we will
see larger patterns emerge. By seeing the patterns, we can begin to understand how the
system works. If the pattern is good for the organization, we can make decisions that
reinforce it; but if the pattern is bad for the organization, we can make decisions that change
the pattern.
The contingency view tells managers that what works in one organizational situation might
not work in others. Managers can identify important contingencies that help guide their
decisions regarding the organization.

 Every situation is unique

 Managers must determine what method will work
 Managers must identify key contingencies for the current situation
 Organizational structure should depend upon industry and other variables

Principles are not universal, and one learns about management by experiencing a large
number of case problem situations. Managers face the task of determining what methods
will work in every new situation.

Here, neither of the other views is seen as entirely correct. Instead, certain contingencies,
or variables, exist for helping managers identify and understand situations. The
contingency view tells us that what works in one setting might not work in another.
Contingency means that one thing depends on other things, and a manager’s response to a
situation depends on identifying key contingencies in an organizational situation.
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Systems thinking management is an approach to management that is characterized by

holistic thinking and the use of the model of a system. System thinking is an alternative
paradigm to our more traditional reductionist approach to management. In science there is
fundamentally just two different paradigms or processes of reasoning, these two different
approaches to modeling are called analysis and synthesis.

Analysis is the standard process of reasoning used within mainstream science, management,
and engineering, while synthesis is typically seen as an alternative and it forms the
foundations to what we call systems thinking.

Systems thinking is a management discipline that concerns an understanding of a system by

examining the linkages and interactions between the components that comprise the entirety of
that defined system.

Systems thinking enables managers to look for patterns of movement over time and
focus on the qualities of rhythm, flow, direction, shape, and networks of relationships that
accomplish the performance of the whole. When managers can see the structures that
underlie complex situations, they can facilitate improvement.But doing that requires a
focus on the big picture.

Looking not just at discrete parts of an organizational situation, but also at the continually
changing interactions among the parts.
System thinking is a major departure from the old way of business decision-making in which
you would break the system into parts and analyze the parts separately. Supporters of system
thinking believe that the old way is inadequate for our dynamic world, where there are
numerous interactions between the parts of a system, creating the reality of a situation.
According to system thinking, if we examine the interactions of the parts in a system, we will
see larger patterns emerge. By seeing the patterns, we can begin to understand how the
system works. If the pattern is good for the organization, we can make decisions that
reinforce it; but if the pattern is bad for the organization, we can make decisions that change
the pattern.

Figure 1. The Systems Perspective of Organizations

As shown in Figure 1 , by viewing an organization as a system, we can identify four basic
elements: inputs, transformation processes, outputs, and feedback. First, inputs are the
material, human, financial,and information resources that an organization gets from its
environment. Next, through technological and managerial processes, inputs are transformed
into outputs. Outputs include products, services, or both (tangible and intangible); profits,
losses, or both (even not-for-profit organizations must operate within their budgets);
employee behaviors; and information. Finally, the environment reacts to these outputs and
provides feedback to the system.
Subsystems are parts of a system, such as an organization, that depend on one another.

Synergy means that the whole is greater than the sum of its parts.

Thinking of organizations as systems provides us with a variety of important viewpoints

on organizations, such as the concepts of open systems, subsystems, synergy, and entropy

Open systems : A system that interacts with its environment

Closed systems : A system that does not interact with its environment

System perspective helps administrators

+ Need and ability to see each individual component as well as the complex interaction
between them in the organization
+ When dealing with a problem in this department, it is necessary to put it in an
interactive relationship with other parts
+ See the synergies in the organization - the whole is greater than the sum of the
individual parts
An important element of systems thinking is to discern circles of causality. Peter Senge,
author of The Fifth Discipline, argues that reality is made up of circles rather than straight
lines.

Exhibit 1. Systems Thinking and Circles of Causality

Understanding all the consequences of their decisions via circles of causality enables
company leaders to plan and allocate resources to warehousing as well as to advertising
to ensure stable increases in sales and profits. Without understanding system causality,
top managers would fail to understand why increasing advertising budgets could cause
inventory delays and temporarily reduce profits.
Contingency perspective : Suggests that appropriate managerial behavior in a given
situation depends on, or is contingent on, unique elements in a given situation

The contingency approach to management emphasizes that there is no single best way to
manage people or work in every situation. A method that leads to high productivity or
morale under one set of circumstances may not achieve the same results in another. The
contingency approach is derived from the study of leadership and organization structures.
With respect to leadership, psychologists developed detailed explanations of which style
of leadership would work best in which situation. An example would be for the manager
to give more leeway to competent group members. Also, the study of organization
structure suggests that some structures work better in
different environments. For example, a team structure is often best for a rapidly changing
environment. Common sense also contributes heavily to the contingency approach.
Experienced managers know that not all people and situations respond in the same way to
identical situations. The contingency approach is emphasized throughout this book. The
strength of the contingency approach is that it encourages managers to examine
individual and situational differences before deciding on a course of action. Its major
problem is that it is often used as an excuse for not acquiring formal knowledge about
management. If management is determined by the situation, why study management
theory? The answer is because a formal study of management helps a manager decide
which factors are relevant in a given situation.
The contingency view tells managers that what works in one organizational situation might
not work in others. Managers can identify important contingencies that help guide their
decisions regarding the organization.

 Every situation is unique

 Managers must determine what method will work
 Managers must identify key contingencies for the current situation
 Organizational structure should depend upon industry and other variables

Principles are not universal, and one learns about management by experiencing a large
number of case problem situations. Managers face the task of determining what methods
will work in every new situation.

Here, neither of the other views is seen as entirely correct. Instead, certain contingencies,
or variables, exist for helping managers identify and understand situations. The
contingency view tells us that what works in one setting might not work in another.
Contingency means that one thing depends on other things, and a manager’s response to a
situation depends on identifying key contingencies in an organizational situation.