MANAGEMENT AND ORGANIZATIONAL BEHAVIOR

Prof. Leigh Stelzer

SYSTEMS APPROACH, W&N 2

Objective: Use the Systems Approach to think about and analyze organizations.

Environment Environment

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/ \

Inputs ---> Transformation ---> Outputs -->

<--------- Feedback ---------------------------

Categories: The systems approach provides a set of categories for thinking about business. Inputs, outputs, etc. These are abstract categories, not concrete. ASK, What are the inputs and outputs? Typically inputs are resources and demands on the system. Again, "concretize" these abstractions. Resources are workers, materials, energy, markets, reputation... Demands may include laws, orders, bills from suppliers, debt ... Outputs are goods and services, decisions of the system. Is culture a resource or a demand?

Considerations: The system approach also gives you a set of considerations or perspectives. Ways for thinking about organizations.

1. There is interdependence or contingency among the categories. Inputs are transformed into outputs. Outputs are contingent on the inputs and the transformation process. One aspect of the system depends on another. The systems approach is about the interrelationships of all elements.

2. Systems theory stresses the importance of the environment. Open systems receive inputs from the environment. Business is an open system dependent on the environment for inputs.

Closed systems are self contained, independent, discreet. Closed systems receive no inputs. They are either dead or a sort of perpetual motion machine.

3. Boundaries separate the system and the environment. The issue of boundaries addresses the question of what is the system and what is the environment. Where does one end and the other begin. If inputs come from the environment, is the system the transformation process? Boundary specification is important to considerations of control. If something is within the boundaries, it is under control. Outside is not. The system must design strategies to address opportunities and threats in the environment. Begin with environmental scanning; then forecast; then attempt to manipulate the environment.

4. Feedback is a source of inputs. This suggests adjustment and self-regulation.

In addition to these four considerations, consider two implications of the systems approach.

1. The environment is the major source of uncertainty for the firm. By definition, the environment is outside control. One way a system gains control is by incorporating more of its environment into the system. The more inputs are brought in, the more the firm can reduce its uncertainty.

This is a major argument for vertical and horizontal growth of organizations. An organization seeks to control its suppliers and markets in order to reduce uncertainty. The system also seeks to control processes upon which it depends (govt, weather, culture) and its competitors. How does this "square with " an age of downsizing and outsourcing?

Note that "going global" extends the environment to global markets and global competition.

2. The manager is an intervening link between the firm and the environment. She/He perceives threats and opportunities in the environment. He/She makes decisions about what aspects of the environment to respond to and which to ignore.

This becomes a major argument for more and specialized staff; human relations, governmental relations, the company foundation or institute, international division management, ethics staff, strategic management.

A systems view of uncertainty. The environment is a source of decision making uncertainty. You should view the environment as a demand system. It demands outputs which are decisions or products of the system. The organization is a supply system. The organization has information and resources and a mix of productive capacity which the manager can use to satisfy the demands of the environment.

Environmental Demand ---> Organization supply system----> Decision or product

"Environmental uncertainty" is a function of the adequacy of supply to meet demand. When demand for decision exceeds supply of information, there is high perceived uncertainty.

Thus, look at environmental uncertainty as dependent on the organization rather than on the environment. It is the organization, not the environment that is uncertain. Certainty exists when the organization has all the information it needs to make a decision. Risk is the lack of certainty. Risk involves attaching probabilistic likelihood estimates to alternative possible outcomes. When you lack some of the information you need, you estimate the information and guess at the likelihood that your guess is correct.

How to characterize the environment demand structure. ( Gerloff and Jurkovich): W&N p.168

1. complexity: number of elements in the environment

2. diversity: variety of elements, distinct, segmented, organized and/or coordinated or not.

3. dynamism: change, change over time, change in the rate of change. stable v. unstable

4. munificence: environmental support for/hostility to the organization

It is often useful to distinguish two types of environments. Distinguish the task from the general environment. General environment refers to the general economic, political- legal-governmental, cultural, technology, and social environment. It affects everybody. Task environment is composed of people and organizations with whom the firm is in direct contact. It is different for each firm.