SystemsOrganic Theories Contingency Theory by Erlan Bakiev Ph

Systems/Organic Theories & Contingency Theory by Erlan Bakiev, Ph. D. Zirve University Spring 2012

Systems Theory • Synergy • Interdependence • Interconnections • within the organization • between the organization and the environment • Organization as ORGANISM • “A set of elements standing in inter-relations”

General Theoretical Distinctions • Classical and humanistic theories prescribe organizational behavior, organizational structure or managerial practice (prediction and control). MACHINE • Systems theory provides an analytical framework for viewing an organization in general (description and explanation). ORGANISM

Systems Framework • Ludwig von Bertalanffy (1968) • Offered a more comprehensive view of organizations • NOT a theory of management - new way of conceptualizing and studying organizations • Four Strengths (“promises”) M. Scott Poole • • Designed to deal with complexity Attempts to do so with precision Takes a holistic view It is a theory of emergents - actions and outcomes at the collective level emerge from the actions and interactions of the individuals that make up the collective

The Systems Approach • What is a System? • A collection of parts that operate interdependently to achieve a common purpose. • Systems Approach • Posits that the performance of the whole is greater that the sum of the performance of its parts. • Analytic versus synthetic thinking: outside-in thinking versus inside-out thinking. • Seeks to identify all parts of an organized activity and how they interact.

General Systems Theory • An area of study based on the assumptions that everything is part of a larger, interdependent arrangement. • Levels of systems • Each system is a subsystem of the system above it. • Identification of systems at various levels helps translate abstract systems theory into more concrete terms.

General Systems Theory Cont. • Closed Versus Open Systems • Closed system • A self-sufficient entity. • Open system • Something that depends on its surrounding environment for survival. • Systems are classified open (closed) by how much (how little) they interact with their environments.

Systems Considerations • An open system interacts with the environment. A closed system is selfcontained. • Closed systems often undergo entropy and lose the ability to control itself, and fails. • Synergy: performance gains of the whole surpass the components. • Synergy is only possible in a coordinated system.

The Organization as an Open System Input Stage Conversion Stage Output Stage Raw Materials Machines Goods Services Human skills Sales of outputs Firm can then buy inputs

General Systems Theory Cont. • New Directions in Systems Thinking: Organizational learning and knowledge management • Organizations are living and thinking open systems that learn from experience and engage in complex mental processes. • Chaos theory • Every complex system has a life of its own, with its own rule book. • Complex adaptive systems • Complex systems are self-organizing.

Misunderstandings • Doesn’t focus on specific task functions • Doesn’t directly explore the impact of interpersonal relationships and loyalty on productivity • Doesn’t provide for detailed focus • Changes in environment directly affect the structure and function of the organization.

Strengths • Recognizes. . . • interdependence of personnel • impact of environment on organizational structure and function • affect of outside stakeholders on the organization • Focuses on environment and how changes can impact the organization • Seeks to explain “synergy” & “interdependence” • Broadens theoretical lens for viewing organizational behavior.

Principles of General Systems Theory • Laws that govern biological open systems can be applied to systems of any form. • Open-Systems Theory Principles • • • Parts that make up the system are interrelated. Health of overall system is contingent on subsystem functioning. Open systems import and export material from and to the environment. Permeable boundaries (materials can pass through) Relative openness (system can regulate permeability) Second Principle of Thermodynamics (ENTROPY) • Entropy must increase to a maximum • Negentropy increases growth and a state of survival • Synergy (extra energy causes nonsummativity--whole is greater than sum of parts) • Equifinality vs. “one best way. ”

Characteristics of Organizations as Systems • Input-Throughput-Output • Inputs • Maintenance Inputs (energic imports that sustain system) • Production Inputs (energic imports which are processed to yield a productive outcome) • • • Throughput (System parts transform the material or energy) Output (System returns product to the environment) TRANSFORMATION MODEL (input is transformed by system) • Feedback and Dynamic Homeostasis • • • Positive Feedback - move from status quo Negative Feedback - return to status quo Dynamic Homeostasis - balance of energy exchange • Equivocality and Requisite Variety (Karl Weick) • • Equivocality (uncertainty and ambiguity) Requisite Variety (complex inputs must be addressed with complex processes)

Characteristics of Organizations as Systems • Role of Communication • Communication mechanisms must be in place for the organizational system to exchange relevant information with its environment • • Boundary Spanners perform this function! • Media Outlets are communication link between system & environment Communication provides for the flow of information among the subsystems • Systems, Subsystems, and Supersystems • • Systems are a set of interrelated parts that turn inputs into outputs through processing Subsystems do the processing Supersystems are other systems in environment of which the survival of the focal system is dependent Five Main Types of Subsystems • • • Production (technical) Subsystems - concerned with throughputs-assembly line Supportive Subsystems - ensure production inputs are available-import raw material Maintenance Subsystems - social relations in the system-HR, training Adaptive Subsystems - monitor the environment and generate responses (PR) Managerial Subsystems - coordinate, adjust, control, and direct subsystems

Characteristics of Organizations as Systems • Boundaries • The part of the system that separates it from its environment • Four Types of Boundaries (Becker, 1997) • • Physical Boundary - prevents access (security system) Linguistic Boundary - specialized language (jargon) Systemic Boundary - rules that regulate interaction (titles) Psychological Boundary - restricts communication (stereotypes, prejudices) • The ‘Closed’ System • • • Healthy organization is OPEN Do not recognize they are embedded in a relevant environment Overly focused on internal functions and behaviors Do not recognize or implement equifinality Inability to use feedback appropriately CO-DEPENDENT

Summary • Systems Theory is NOT a prescriptive management theory • Attempts to widen lens through which we examine and understand organizational behavior • The Learning Organization • • • Synergy Nonsummativity Interdependence Equifinality Requisite Variety Emphasizes COMMUNICATION in the Learning Process • Organizations cannot separate from their environment • Organizational teams or subsystems cannot operate in isolation

Background Info. for Contingency Theory • During the 1960 s, the importance of studying the impact of the external environment on an organization became clear after the development of: • The open-systems theory; and • The contingency theory 18

The Contingency Approach • A research effort to determine which managerial practices and techniques are appropriate in specific situations. • Different situations require different managerial responses. • Can deal with intercultural feelings in which custom and habits cannot be taken for granted.

The Contingency Approach Cont. • Contingency Characteristics • An open-system perspective • How subsystems combine to interact with outside systems. • A practical research orientation • Translating research findings into tools and situational refinements for more effective management. • A multivariate approach • Many variables collectively account for variations in performance.

The Contingency Approach Cont. • Lessons from the Contingency Approach • Approach emphasizes situational appropriateness rather than rigid adherence to universal principles. • Approach creates the impression that an organization is captive to its environment. • Approach has been criticized for creating the impression that an organization is a captive of its environment.

What is Contingency Theory? • Developed in the 1960 s by Tom Burns and G. M. Stalker in Britain and Paul Lawrence and Jay Lorsch in the United States • It is the idea that the organizational structures and control systems that managers choose depend on (i. e. are contingent on) characteristics of the external environment in which the organization operates 22

Two Contingency Theories • Burns and Stalker (1968) Management of Innovation • Organizational systems should vary based on the level of stability in the environment • Two different types of management systems • Mechanistic systems - appropriate for stable environment • Organic systems - required in changing environments (unstable conditions) • Management is the Dependent Variable • Variations in environmental factors lead to management • Lawrence and Lorsch (1969) • Key Issue is environmental uncertainty and information flow • Focus on exploring and improving the organization’s relationship with the environment • Environment is characterized along a certainty-uncertainty continuum

Characteristics of Contingency Theory • The characteristics of the external environment affect an organization’s ability to obtain resources • To maximize the likelihood of gaining access to scarce resources, managers must allow an organization’s departments to organize and control their activities in ways most likely to allow them to obtain those resources • Examples of characteristics of the external environment include (but are not limited to): • changes in the environment; • the entry of new competitors; • unstable economic conditions.

Characteristics of Contingency Theory Cont. • Burns & Stalker (drawing on Weber’s and Fayol’s principles of organization and management) proposed 2 basic ways in which managers can organize and control an organization’s activities in response to its external environment: • A mechanistic structure for organizations in stable environments (typically resting on Theory X assumptions); or • An organic structure for organizations in changing environments (typically resting on Theory Y assumptions) 25

Mechanistic vs. Organic Structures Mechanistic Structures exhibit: Ø Managerial authority resting at the top & controlling the behavior of subordinates Ø Close supervision of subordinates with tasks & roles clearly defined Ø An emphasis on strict discipline & order Ø An example is Mc. Donald’s – supervisors make all important decisions; employees are closely supervised & follow well-defined rules & standard operating procedures Organic Structures exhibit: Ø Middle & 1 st line managers are encouraged to take responsibility & act quickly to acquire scarce resources Ø Tasks & roles are left ambiguous to encourage employees to cooperate & respond quickly to the unexpected Ø Cross-departmental teams (authority rests with the individuals, departments and teams best poised to control the specific problem facing the organization) Ø More expensive to operate as it requires more managerial time, money & effort to be spent on coordination Ø Only used when needed; i. e. when the external environment is unstable & rapidly changing Ø An example is Nokia – teams make important decisions; teams are given autonomy & are allowed to be 26 creative

Slide 1. 27 A graphic explanation of Contingency Theory of Organizational Design • There’s no one best way to organize Characteristics of the external environment • Organizational structure depends on the environment in which an organization operates Determine the design of an organization’s structure and control systems Organizations in stable environments choose a MECHANISTIC structure (i. e. , centralized authority, vertical communication flows, control through strict rules and procedures) Organizations in changing environments choose and ORGANIC structure (i. e. , decentralized authority, horizontal communication flows, intra-departmental cooperation) John Mc. Auley, Joanne Duberley and Phil Johnson , Organization Theory: Challenges and Perspectives , 1 st Edition, © Pearson Education Limited 2007

Pragmatic Application of Systems Theory • The Learning Organization • Peter Senge’s The Fifth Discipline: The Art and Practice of the Learning Organization (1990) • An organization that is continually expanding its capacity to create its future • Organizational Learning Occurs under Two Conditions • 1) When design of organizational action matches the intended outcome • 2) When initial mismatch between intentions and outcomes is corrected, resulting in a match • Key attribute of learning organization is increased adaptability • Adaptability is increased by advancing from adaptive to generative learning

The Learning Organization • Adaptive (single-loop) Learning • Involves coping with a situation • Limited by the scope of current organizational assumptions • Occurs when a mismatch between action and outcome is corrected without changing the underlying values of the system that enabled the mismatch. • Generative (double-loop) Learning • Moves from COPING to CREATING an improved organizational reality • Necessary for eventual survival of the organization • Both are Central Features of the Model of the Communicative Organization (Chapter 6) • Synergy and Nonsummativity are Important

The Learning Organization • Through communication, teams are able to learn more than individuals operating alone. • Critics argue that teams inhibit learning • Thoughts? • Leadership is a key element in creating and sustaining a learning organization. • Leaders are responsible for promoting an atmosphere conducive to learning • CREATIVE TENSION • Represents difference between the “vision” of where the organization could be and the reality of the current organizational situation.

Impediments to Learning Organization • Complexity of the Environment • Difficult to determine cause and effect • Multiple contributing elements in complex environments • Internal Conflicts • Individuals, teams, departments, and subcultures are often at odds • Energy is drained by conflect • Organization members must be trained in communication and conflict-negotiation skills

Conclusion • The importance of studying the organization’s external environment became clear in the 1960 s. • A main focus of such research was to find methods to help managers improve the ways they use organizational resources and compete successfully in the global environment. 32

Bottom Line The same misunderstandings and problems that continue to occur will eventually cause fatal damage to the system.