What is System Theory of Management?
System theory of management refers to the goal-oriented mechanism composed of different parts that interact and are interrelated in a way that the collective efforts of all parts are greater than the sum of their parts.
In simple words, the system theory views an organization as a system that is composed of different parts, and for goal achievement, all these parts need to work collectively.
An organization is indeed a system.
Since a system is a collection of subsystems and all subsystems are related to each other. The activity of one subsystem affects the other subsystem.
The system approach defines all systems are composed of three elements input, process, and output which function in the environment.
An organization as a system has input (human, physical resource), process (operation), and input (product, profitability).
Different departments such as production, finance, procurement, marketing, etc. are the subsystems of an organization, and their collective yet coordinated efforts are necessary for efficient output for the system i.e. organization.
Components of System Theory
The system management approach defines an organization system as following three components:
Input
Input is the first step of the system approach.
An organization’s input includes human resources, raw materials, physical resources, financial resources, equipment, technology, and information.
Process
The organizational process consists of processing inputs to make them the desired outputs.
The process may include transformation, operation, planning, leadership, and management control.
Output
Output is the product of an organization. After successful processing, the output of an organization may be the desired product, service, employee behavior, productivity, profitability, loss, job satisfaction, etc.
Organizational outputs are that customers consume perceive and provide feedback.
Characteristics of System Theory
The system approach is a balanced view of management which suggests that managers must take an overall balanced view because the best for the whole is not necessarily the best for each component of the system.
Some of the features of the system approach include:
Goal-Oriented
An organization is a goal-oriented system.
An organization’s all subsystems have certain goals to achieve and their collective efforts result in the achievement of the goals of the system.
Open Vs. Closed System
An organization is composed of both open and closed systems.
A closed system is within the organization and does not interact with the external environment. Nor does it affect the environment nor is get affected.
An open system interacts with both the internal and external environment.
It influences and gets influenced by the external environment. An open system is more complex than a closed system as it is related to the internal and external environment.
Subsystems
Every system has its sub-systems. An organization as a system has various sub-systems such as its different business units, functional departments, employee groups, etc.
They all are interconnected and interrelated to each other.
Synergy
Synergy describes the efforts of the whole as greater than the efforts of individual parts. The system approach ensures synergy in the organization.
This approach suggests to management that an organization’s subsystems should coordinate in such a way that the output should be always greater than the sum of the output of the individual subsystems.
System Boundary
Every system has a boundary. In an open system, the boundary is flexible and in a closed system, the boundary is fixed. The boundary of one organization is different from another organization.
Feedback
Feedback is an essential component of the management system to provide information regarding output.
This is required for taking corrective actions in the organization if the results deviate from standard results.
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Contributors of System Theory of Management
The major contributors to the System Theory of Management include the following individuals, each of whom significantly shaped the theory:
Ludwig von Bertalanffy
Ludwig von Bertalanffy, an Austrian biologist, developed General Systems Theory (GST) in the 1940s to address the need for a holistic approach to studying systems.
He proposed that systems, whether biological, social, or mechanical, are composed of interrelated parts that function as a unified whole.
Bertalanffy’s work emphasized the concept of open systems, which interact with their external environment, greatly influencing management theory and the understanding of organizations as interconnected systems.
Chester I. Barnard
Chester I. Barnard, an American management theorist, contributed to system theory by introducing the concept of organizations as cooperative systems.
In his seminal work The Functions of the Executive, he argued that organizations operate through cooperation among individuals and emphasized the importance of communication, motivation, and authority.
Barnard’s ideas laid the groundwork for understanding how managers coordinate subsystems within an organization to ensure organizational goals are achieved through cooperation.
Kenneth Boulding
Kenneth Boulding, an American economist and systems theorist, contributed to system theory through his classification of systems into hierarchical levels in the 1950s.
He introduced the concept of feedback loops and the dynamic interactions within systems. Boulding’s work emphasized the need to understand how different parts of a system interact and how external and internal factors affect the whole system.
His ideas on feedback and system complexity were influential in the development of systems thinking and management.
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Jay W. Forrester
Jay W. Forrester, an American computer scientist, developed System Dynamics in the 1950s and 1960s. His methodology focused on modeling and simulating complex systems, such as industrial processes and economic systems.
Forrester’s work introduced the concepts of feedback loops and delays in systems, helping managers understand the long-term effects of their decisions.
His simulation models provided valuable insights into the dynamic behavior of organizations and helped managers improve decision-making by considering the future impact of their actions.
Norbert Wiener
Norbert Wiener, an American mathematician, is the father of Cybernetics, a field that studies control and communication in complex systems.
Wiener’s work introduced the concept of feedback as a central component in maintaining balance and self-regulation in systems.
His theories applied to both mechanical systems and organizations, showing how feedback loops help organizations adapt and improve.
Cybernetics influenced management by emphasizing the role of communication and control in organizational systems, improving understanding of organizational dynamics and decision-making processes.
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Contributions and Limitations of System Theory
The system theory’s known limitations and contributions are mentioned below:
Contributions:
Major contributions are:
- It provides a holistic view of the organization.
- It analyzes how different subsystems interact and relate to one another to produce synergistic effects.
- It implies that the organizational system would experience environmental effects, allowing management to implement important tactics to counteract environmental influence.
- This theory helps manage large and complex organizations.
Limitations:
Major limitations are:
- This theory is too abstract which is intangible in the real sense.
- It is not possible to apply this concept in small organizations.
- This approach does not provide specific guidelines to managers for functions and duties.
- There are no specific tools of management suggested by this theory.
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Sajan Kushmi is a content writer with more than 4 years of experience. He holds BIM Degree. He write on the topics related to Management, Marketing, and Entrepreneurship.