Modern Organization Theory – Systems Theory

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Modern Theory of Organisation

The Modern Organisation Theory describes organisations as an open social system that interacts with the environments to survive, known as the Systems Theory Approach. The System Theory Of Management approach is an external factor which measures the effectiveness based on long-term sustainability or growth.


A significant application of Systems Theory is in Business Organisations to elucidate a particular approach to management.. The Modern Organisation Theory was not originally a business theory but was proposed during the 1940s.


Modern Organisational Theories is divided into two major types – Systems Theory and Contingency Theory. In this article, you will comprehend Systems Theory and its contributions and criticisms in a detailed manner.


System Theory of Management

The Systems Theory was proposed during the early 1960s. The Theory holds a conceptual and analytical base, and thus the system presents a great significance on the empirical research data.


In simple words, Systems Theory considers organisations as a network of systems. A system can be either an organised or complex whole, that is, it can be referred to as a combination or an assemblage of things or parts that comprise a complex unitary whole.

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A system comprises different parts known as the subsystems, which are interrelated to one another. Further, the various subsystems are arrayed based on a particular scheme so that the complete system is more than a summation of the various parts. This ensures the system's efficient functioning and secures every system with a boundary that separates it from its environment.


Organisational Systems and Its Environment

There are two types of organisational systems:-


Open Systems  

Open Systems interact with their environment, and all living systems fall under this category.

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Closed Systems 

Closed Systems hold no interaction with their environment, and all non-living systems fall under this category.


An organisation is said to be an Open System if it incessantly interacts with its environment. Therefore, to understand the working of an organisation, one must identify its boundary and through the organisation's interaction with its environment as an input-output model. An organisation's inputs are information, energy, and materials that an organisation takes from its environment. The input consumed is then transformed with machines and people's help and then supplies the output to the environment. 


An organisation comprises multiple subsystems like Social subsystem, Technical subsystem, and more. A few of these subsystems are independent and do not rely on the interlinking through any other processes. 

Hence, the Systems Theory involves the study of an organisation and identifies four major factors- 

  • The nature of Interdependence between the parts of the system

  • The strategic parts

  • The lists of the goals that the system is trying to approach

  • The list of any systems or processes which link the parts of the systems together 

Contributions of The System Theory of Management

  1. Systems Theory offers an open-view of an organisation and presents the recognition of its environmental interface. 

  2. Systems Theory of Management is adaptive and dynamic 

  3. Systems Theory adopts a multi-dimensional and multilevel approach, and therefore, it considers both the micro and macro aspects of the environment.

  4. Cybernetics is another significant contribution to Systems Theory as it the science of communication and controls the man-machine system.

  5. The Theory is drawn from several disciplines like Economics, Sociology, Engineering, Psychology, etc.

  6. The Systems Theory is descriptive, not normative or prescriptive, and the Theory is also probabilistic and not deterministic and significantly emphasises on the lateral relationships over vertical relationships.


Criticism of The Systems Theory

  1. The Systems Theory does not present any framework which does not apply to all the organisations.

  2. The Theory is not modern but is a synthesis of all the research contributions of previous theories.

  3. The Systems Theory is too abstract to be practical and does not specify any precise and specific relationships between the social systems and the organisation.

  4. The Theory is an amalgamation of multiple Theories like Contingency Theory, Decision Theory, and more and not a unified theory.

FAQ (Frequently Asked Questions)

Q1. What is an Open System Approach?

The open-systems approach of an organisation was first applied by Katz and Kahn, who adapted the General Systems Theory to organisational behaviour. The Open Systems Approach recognises all the underlying organisational behaviour through mapping the replication cycles of input, output, throughput, and feedback between the external environment and the organisation. The systems gain input from the environment either in the form of the resources or as information. The input is processed internally through the process known as throughput and then releases the outputs into the environments to restore the equilibrium. 


The Open System approach then seeks feedback to ascertain whether the output stands effective in restoring the equilibrium. 


The Systems Approach pivots on the means that maintain the organisational survival and lays major emphasis on the long-term goals over the goal-attainment approach's short-term goals.

Q2. What are the Features of the system approach?

Systems Approach is generally based on the conjecture that everything is interdependent and interrelated. 


The Management Theories of Systems Approach states that an organisation remains a dynamic system as it is responsive to its environment. Therefore, it remains vulnerable to change or interchange in its environment.


An Organisational System comprises a boundary which determines whether the parts are external or internal.


A system is a set of interdependent and interrelated parts that are systematically aligned in a manner that presents a unified whole and comprises interacting elements.


A system can never exist in a vacuum and obtains energy, information, and materials from other systems as sources of inputs. These inputs then undergo a transformation process within the system, leaving the system as output to other systems.

The multiple subsystems present in any system should be studied and evaluated in their inter-relationships rather than in isolation from each other.