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Open Systems Theory (OST) is a modern systems-based changed management theory designed
to create healthy, innovative and resilient organizations and communities in todays fast
changing and unpredictable environments.
As organizations and communities conduct their business they influence and change their
external environments, while at the same time being influenced by external changes in local and
global environments. This two-way influential change is known as active adaptive change.
Organizations and communities are open systems; changing and influencing each other over
time.
To ensure viability an Open System must have an open and active adaptive relationship with its
external environment. In other words, a healthy viable Open System has a direct correlation
with respect to changing values and expectations over time with its external environment. The
corollary therefore is that if the values and expectations of a certain organization or community
are out of sync with those that exist in the external environment then that particular
organization or community will eventually become unhealthy and unviable.
This understanding has led to the development of Open Systems Theory, which is a state-of-the-
art systems-based change management body of knowledge designed for todays turbulent and
unpredictable environment. It is being utilised by many successful organizations, including
corporate giants such as Microsoft and Hewlett Packard.
People too are open systems. Through their actions they influence and change their external
environment, and at the same time are constantly being influenced by changes in the external
environment. From an employees perspective, the organization itself is their immediate
external environment. The aggregated effect of this influential change between people, their
organization and/or community and the external environment is known as socio-ecological
(people-in-system-in-environment) change. In todays globalised and networked world socio-
ecological change is relentless and increasing exponentially.
The prime driver of this change is the increasing rate of change in peoples values and
expectations in the external environment. People are constantly changing their minds about
decisions they will make, including what products and services they will buy and how theyll buy
them. The rate of socio-ecological change is being accelerated by globalisation, deregulation, and
technological change. All these factors are combining to produce fierce competition for
organizations and communities as well as causing unprecedented turbulence and uncertainty.
Consider for example, the impact social networking technology can have on consumer decision
making. When Johnson & Johnson ran TV advertisements in the US pushing mothers to take
the painkiller Motrin, an outraged community immediately got onto Facebook and Twitter to
vent their spleen. It was a marketing and PR disaster that caused problems for months. A
mismatch of values and expectations is also occurring within organizations resulting in huge
productivity losses. As the Johnson & Johnson example highlights, people as consumers speak
out and demand their rights. However, when these same consumers arrive at their workplaces,
which are mostly bureaucratic, command-and-control structures, they are often treated like
irresponsible children.
But people are increasingly well educated, sophisticated and independent. They are increasingly
less likely to suffer the authoritarianism they experience within bureaucratic structures. They
are also less likely to tolerate managers assuming they are inadequate human beings. The
outcomes of this mismatch of values are low motivation, innovation and productivity and high
turnover and absenteeism. And the problem is endemic. Only 18% of the Australian population
are engaged in their work, 62% are not engaged, and 20% are actively disengaged according to
David Croston in his 2009 book Employee Engagement. To ensure viability today and
prosperity tomorrow both organizations and communities must have, over time, an open and
actively adaptive relationship with their external environments.
The only known body of knowledge that has been specifically developed to help organizations
and communities produce an active adaptive relationship with external environments is Open
Systems Theory. Active adaptive organizations and communities know they cant operate as
closed systems and ignore whats happening in the world around them. They are open systems
that:
ORGANIZATION THEORY
Of the various organizational theories that have been studied in this realm, the open-
systems theory has emerged as perhaps the most widely known, but others have their
proponents as well. Indeed, some researchers into organizational theory propound a
blending of various theories, arguing that an enterprise will embrace different
organizational strategies in reaction to changes in its competitive circumstances,
structural design, and experiences.
BACKGROUND
Another important contributor to organization theory in the early 1900s was Henri
Fayol. He is credited with identifying strategic planning, staff recruitment, employee
motivation, and employee guidance (via policies and procedures) as important
management functions in creating and nourishing a successful organization.
Weber's and Fayol's theories found broad application in the early and mid-1900s, in
part because of the influence of Frederick W. Taylor (1856-1915). In a 1911 book
entitled Principles of Scientific Management , Taylor outlined his theories and
eventually implemented them on American factory floors. He is credited with helping to
define the role of training, wage incentives, employee selection, and work standards in
organizational performance.
Researchers began to adopt a less mechanical view of organizations and to pay more
attention to human influences in the 1930s. This development was motivated by several
studies that shed light on the function of human fulfillment in organizations. The best
known of these was probably the so-called Hawthorn Studies. These studies, conducted
primarily under the direction of Harvard University researcher Elton Mayo, were
conducted in the mid-1920s and 1930s at a Western Electric Company plant known as
the Hawthorn Works. The company wanted to determine the degree to which working
conditions affected output.
Surprisingly, the studies failed to show any significant positive correlations between
workplace conditions and productivity. In one study, for example, worker productivity
escalated when lighting was increased, but it also increased when illumination was
decreased. The results of the studies demonstrated that innate forces of human behavior
may have a greater influence on organizations than do mechanistic incentive systems.
The legacy of the Hawthorn studies and other organizational research efforts of that
period was an emphasis on the importance of individual and group interaction,
humanistic management skills, and social relationships in the workplace.
The focus on human influences in organizations was reflected most noticeably by the
integration of Abraham Maslow's "hierarchy of human needs" into organization theory.
Maslow's theories introduced two important implications into organization theory. The
first was that people have different needs and therefore need to be motivated by
different incentives to achieve organizational objectives. The second of Maslow's
theories held that people's needs change over time, meaning that as the needs of people
lower in the hierarchy are met, new needs arise. These assumptions led to the
recognition, for example, that assembly-line workers could be more productive if more
of their personal needs were met, whereas past theories suggested that monetary
rewards were the sole, or primary, motivators.
Douglas McGregor contrasted the organization theory that emerged during the mid-
1900s to previous views. In the 1950s, McGregor offered his renowned Theory X and
Theory Y to explain the differences. Theory X encompassed the old view of workers,
which held that employees preferred to be directed, wanted to avoid responsibility, and
cherished financial security above all else.
McGregor believed that organizations that embraced Theory Y were generally more
productive. This theory held that humans can learn to accept and seek responsibility;
most people possess a high degree of imaginative and problem-solving ability;
employees are capable of effective self-direction; and that self-actualization is among the
most important rewards that organizations can provide its workers.
OPEN-SYSTEMS THEORY
The term "open systems" reflected the newfound belief that all organizations are
uniquein part because of the unique environment in which they operateand that
they should be structured to accommodate unique problems and opportunities. For
example, research during the 1960s indicated that traditional bureaucratic
organizations generally failed to succeed in environments where technologies or
markets were rapidly changing. They also failed to realize the importance of regional
cultural influences in motivating workers.
Environmental influences that affect open systems can be described as either specific or
general. The specific environment refers to the network of suppliers, distributors,
government agencies, and competitors with which a business enterprise inter-acts. The
general environment encompasses four influences that emanate from the geographic
area in which the organization operates. These are:
Cultural values, which shape views about ethics and determine the relative importance of
various issues.
Economic conditions, which include economic upswings, recessions, regional
unemployment, and many other regional factors that affect a company's ability to grow
and prosper. Economic influences may also partially dictate an organization's role in the
economy.
Legal/political environment, which effectively helps to allocate power within a society
and to enforce laws. The legal and political systems in which an open system operates
can play a key role in determining the long-term stability and security of the
organization's future. These systems are responsible for creating a fertile environment
for the business community, but they are also responsible for ensuringvia regulations
pertaining to operation and taxationthat the needs of the larger community are
addressed.
Quality of education, which is an important factor in high technology and other
industries that require an educated work force. Businesses will be better able to fill such
positions if they operate in geographic regions that feature a strong education system.
The open-systems theory also assumes that all large organizations are comprised of
multiple subsystems, each of which receives inputs from other subsystems and turns
them into outputs for use by other subsystems. The subsystems are not necessarily
represented by departments in an organization, but might instead resemble patterns of
activity.
Organizations differ greatly in size, function, and makeup. Nevertheless, the operations
of nearly all organizationsfrom the multinational corporation to a a newly opened
delicatessenare based on a division of labor, a decision-making structure; and rules
and policies. The degree of formality with which these aspects of business are
approached vary tremendously within the business world, but these characteristics are
inherent in any business enterprise that utilizes the talents of more than one person.
Informal organizations, on the other hand, are less likely to adopt or adhere to a
significant code of written rules or policies. Instead, individuals are more likely to adopt
patterns of behavior that are influenced by a number of social and personal factors.
Changes in the organization are less often the result of authoritative dictate and more
often an outcome of collective agreement by members. Informal organizations tend to
be more flexible and more reactive to outside influences. But some critics contend that
such arrangements may also diminish the ability of top managers to effect rapid change.
ORGANIZATIONAL THEORY IN THE 1980S AND 1990S
By the 1980s several new organizational system theories received significant attention.
These included Theory Z, a blending of American and Japanese management practices.
This theory was a highly visible one, in part because of Japan's well-documented
productivity improvementsand the United States' manufacturing difficultiesduring
that decade. Other theories, or adaptations of existing theories, emerged as well, which
most observers saw as indicative of the ever-changing environment within business and
industry.
The study of organizations and their management and production structures and
philosophies continued to thrive throughout the the 1990s. Indeed, an understanding of
various organizational principles continues to be seen as vital to the success of all kinds
of organizationsfrom government agencies to businessof all shapes and sizes, from
conglomerates to small businesses. "As we observe how different professionals working
in different kinds of organizations and occupational communities make their case, we
see we are still far from having a single 'theory' of organization development," wrote Jay
R. Galbraith in Competing with Flexible Lateral Organizations. "Yet, a set of common
assumptions is surfacing. We are beginning to see patterns in what works and what does
not work, and we are becoming more articulate about these patterns. We are also seeing
the field increasingly connected to other organizational sciences and disciplines," such
as information technology and coordination theory.
FURTHER READING:
Boje, D.M., R.P. Gephert Jr., and T.J. Thatchenkery, eds. Post-modern Management
and Organization Theory. Sage, 1996.