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Organization Development

Organization Development MGMT 628

Lesson 16

Organization as Open Systems

Systems can vary in how open they are to their outside environments. Open systems, such as organizations

and people, exchange information and resources with their environments. They cannot completely control

their own behavior and are influenced in part by external forces. Organizations, for example, are affected

by such environmental conditions as the availability of raw material, customer demands, and government

regulations. Understanding how these external forces affect the organization can help explain some of its

internal behavior.

Open systems display a hierarchical ordering. Each higher level of system comprises lower-level systems:

systems at the level of society comprise organizations; organizations comprise groups (departments); and

groups comprise individuals. Although systems at different levels vary in many ways--in size and

complexity, for example--they have a number of common characteristics by virtue of being open systems,

and those properties can be applied to systems at any level. The following key properties of open systems

are described below: inputs, transformations, and outputs; boundaries; feedback; equifinality; and

alignment.

Inputs, Transformations, and Outputs:

Any organizational system is composed of three related parts: inputs, transformations, and outputs, as

shown in Figure 21. Inputs consist of human or other resources, such as information, energy, and materials,

coming into the system. Inputs are acquired from the system's external environment. For example, a

manufacturer in organization acquires raw materials from an outside supplier. Similarly, a hospital nursing

unit acquires information concerning a patient's condition from the attending physician. In each case, the

system (organization or nursing unit) obtains resources (raw materials or information) from its external

environment.

Transformations are the processes of converting inputs into outputs. In organizations, a production or

operations function composed of both social and technological components generally carries out

transformations. The social component consists of people and their work relationships, whereas the

technological component involves tools, techniques, and methods of production or service delivery.

Organizations have developed elaborate mechanisms for transforming incoming resources into goods and

services. Banks, for example, transform deposits into mortgage loans and interest income. Schools attempt

to transform students into more educated people. Transformation processes also can take place at the

group and individual levels. For example, research and development departments can transform the latest

scientific advances into new product ideas.

Outputs are the results of what is transformed by the system and sent to the environment. Thus, inputs

that have been transformed represent outputs ready to leave the system. Group health insurance companies

receive premiums, healthy and unhealthy individuals, and medical bills, transform them through physician

visits and record keeping, and export treated patients and payments to hospitals and physicians.

Fig 21: The Organization as an Open System

Boundaries:

The idea of boundaries helps to distinguish between systems and environments. Closed systems have

Organization Development MGMT 628

relatively rigid and impenetrable boundaries, whereas open systems have far more permeable borders.

Boundaries--the borders, or limits, of the system--are easily seen in many biological and mechanical

systems. Defining the boundaries of social systems is more difficult because there is a continuous inflow

and outflow through them. For example, where are the organizational boundaries in this case? When a fire

alarm sounds in Malmo, Sweden, a firefighter puts the address of the fire into a computer terminal. A

moment later, the terminal gives out a description of potential hazards at the address. The computer storing

the information is in Cleveland, Ohio. The emergence of the information superhighway and worldwide

information networks will continue to challenge the notion of boundaries in open systems.

The definition of a boundary is somewhat arbitrary because a social system has multiple subsystems and the

boundary line for one subsystem may not be the same as that for a different subsystem. As with the system

itself, arbitrary boundaries may have to be assigned to any social organization, depending on the variable to

be stressed. The boundaries used for studying or analyzing leadership, for instance, may be quite different

from those used to study intergroup dynamics.

Just as systems can be considered relatively open or closed, the permeability of boundaries also varies from

fixed to diffuse. The boundaries of a community's police force are probably far more rigid and sharply

defined than those of the community's political parties. Conflict over boundaries is always a potential

problem within an organization, just as it is in the world outside the organization.

Feedback:

As shown in Figure 21, feedback is information regarding the actual performance or the results of the

system. Not all such information is feedback, however. Only information used to control the future

functioning of the system is considered feedback. Feedback can be used to maintain the system in a steady

state (for example, keeping an assembly line running at a certain speed) or to help the organization adapt to

changing circumstances. McDonald's, for example, has strict feedback processes to ensure that a meal in

one outlet is as similar as possible to a meal in any other outlet. On the other hand, a salesperson in the

field may report that sales are not going well and may insist on some organizational change to improve

sales. A market research study may lead the marketing department to recommend a change to the

organization's advertising campaign.

Equifinality:

In closed systems, a direct cause-and-effect relationship exists between the initial condition and the final

state of the system: when a computer's "on" switch is pushed, the system powers up. Biological and social

systems, however, operate quite differently. The idea of equifinality suggests that similar results may be

achieved with different initial conditions and in many different ways. This concept suggests that a manager

can use varying degrees of inputs into the organization and can transform them in a variety of ways to

obtain satisfactory outputs. Thus, the function of management is not to seek a single rigid solution but

rather to develop a variety of satisfactory options. Systems and contingency theories suggest that there is no

universal best way to design an organization. Organizations and departments providing routine services,

such as AT&T's and MCIWorldCom's long distance phone services could be designed quite differently and

still achieve the same result. Similarly, customer service functions at major retailers, software manufacturers,

or airlines could be designed according to similar principles.

Alignment:

A system's overall effectiveness is determined by the extent to which the different parts are aligned with

each other. This alignment or fit concerns the relationships between inputs and transformations, between

transformations and outputs, and among the subsystems of the transformation process. Diagnosticians

who view the relationships among the various parts of a system as a whole are taking what is referred to as

a systemic perspective.

Alignment refers to a characteristic of the relationship between two or more parts. It represents the extent

to which the features, operations, and characteristics of one system support the effectiveness of another

system. Just as the teeth in two `wheels of a watch must mesh perfectly for the watch to keep time, so do

the parts of an organization need to mesh for it to be effective. For example, General Electric attempts to

achieve its goals through a strategy of diversification, and a divisional structure is used to support that

strategy. A functional structure would not be a good fit with the strategy because it is more efficient for one

division to focus on one product line than for one manufacturing department to try to make many different

products. The systemic perspective suggests that diagnosis is the search for misfits among the various parts

and subsystems of an organization.

Diagnosing Organizational Systems:

Organization Development MGMT 628

When viewed as open systems, organizations can be diagnosed at three levels. The highest level is the

overall organization and includes the design of the company's strategy, structure, and processes. Large

organization units, such as divisions, subsidiaries, or strategic business units, also can be diagnosed at that

level. The next lowest level is the group or department, which includes group design and such devices for

structuring interactions among members as norms and work schedules. The lowest level is the individual

position or job. This includes ways in which jobs are designed to elicit required task behaviors.

Diagnosis can occur at all three organizational levels, or it may be limited to issues occurring at a particular

level. The key to effective diagnosis is to know what to look for at each level as well as how the levels affect

each other. For example, diagnosing a work group requires knowledge of the variables important for group

functioning and how the larger organization design affects the group. In fact, a basic understanding of

organization-level issues is important in almost any diagnosis because they serve as critical inputs to

understanding groups and individuals.

Figure 22 presents a comprehensive model for diagnosing these different organizational systems. For each

level, it shows: (1) the inputs that the system has to work with, (2) the key design components of the

transformation subsystem, and (3) the system's outputs.

Fig 22: Comprehensive Model for Diagnosing Organizational Systems

Organization Development MGMT 628

The relationships shown in Figure 22 illustrate how each organization level affects the lower levels. The

larger environment is an input to organization design. Organization design is an input to group design,

which in turn serves as an input to job design. These cross-level relationships emphasize that organizational

levels must fit with each other if the organization is to operate effectively. For example, organization

structure must fit with and support group task design, which in turn must fit with individual job design.

The following discussion on organization-level diagnosis and the future discussion on group- and job-level

diagnosis provide a general overview of the dimensions (and their relationships) that needs to be

understood at each level. It is beyond the scope at this stage to describe in detail the many variables and

relationships reported in the extensive literature on organizations. However, specific diagnostic questions

are identified and concrete examples are included as an introduction to this phase of the planned change

process.

Organization-Level Diagnosis:

The organization level of analysis is the broadest systems perspective typically taken in diagnostic activities.

The model shown in Figure 22(A) is similar to other popular organization-level diagnostic models. These

include Weisbord's six-box model, Nadler and Tushman's congruency model, Gaibraith's star model, and

Kotter's organization dynamics model. Figure 22(A) proposes that an organization's transformation

processes, or design components, represent the way the organization positions and organizes itself within

an environment (inputs) to achieve specific outputs. The combination of design component elements is

called a strategic orientation.

Inputs:

To understand how a total organization functions, it is necessary to examine particular inputs, design

components, and the alignment of the two sets of dimensions. Figure 22 shows that two key inputs affect

the way an organization designs its strategic orientation: the general environment and industry structure.

The general environment represents the external elements and forces that can affect the attainment of

organization objectives. It can be described in terms of the amount of uncertainty present in social,

technological, economic, ecological, and political forces. The more uncertainty there is in how the

environment will affect the organization, the more difficult it is to design an effective strategic orientation.

For example, the technological environment in the watch industry has been highly uncertain over time. The

Swiss, who build precision watches with highly skilled craftspeople, were caught off guard by the mass

production and distribution technology of Timex in the 1960s. Similarly, many watch manufacturers were

surprised by and failed to take advantage of digital technology. Similarly, the increased incidence of AIDS

in the workplace (social environment) and the passage of the Americans with Disabilities Act (political

environment) have forced changes in the strategic orientations of organizations.

An organization's industry structure or task environment is another important input into strategic

orientation. As defined by Michael Porter, an organization's task environment consists of five forces:

supplier power, buyer power, threats of substitutes, threats of entry, and rivalry among competitors. First,

strategic orientations must be sensitive to powerful suppliers who can increase prices (and therefore lower

profits) or force the organization to pay more attention to the supplier's needs than to the organization's

needs. For example, unions represent powerful suppliers of labor that can affect the costs of any

organization within an industry. Second, strategic orientations must be sensitive to powerful buyers.

Airplane purchasers, such as American Airlines or country governments, can force Airbus Industries or

Boeing to lower prices or appoint the planes in particular ways. Third, strategic orientations must be

sensitive to the threat of new firms entering into competition. Profits in the restaurant business tend to be

low because of the ease of starting a new restaurant. Fourth, strategic orientations must be sensitive to the

threat of new products or services that can replace existing offerings. Ice cream producers must carefully

monitor their costs and prices because it is easy for a consumer to purchase frozen yogurt or other types of

desserts instead. Finally, strategic orientations must be sensitive to rivalry among existing competitors. If

many organizations are competing for the same customers, for example, then the strategic orientation must

monitor product offerings, costs, and structures carefully if the organization is to survive and prosper.

Together, these forces play an important role in determining the success of an organization, whether it is a

manufacturing or service firm, a nonprofit organization, or a government agency.

General environments and industry structures describe the input content. In addition to understanding

what inputs are available, the inputs must be understood for their rate of change and complexity. An

organization's general environment or industry structure can be characterized along a dynamic--static

continuum. Dynamic environments change rapidly and unpredictably and suggest that the organization

adopt a flexible strategic orientation. Dynamic environments are relatively high in uncertainty. The

complexity of the environment refers to the number of important elements in the general environment and

industry structure. For example, software development organizations face dynamic and complex

Organization Development MGMT 628

environments. Not only do technologies, regulations, customers, and suppliers change rapidly, but all of

them are important to the firm's survival. On the other hand, manufacturers of glass jars face more stable

and less complex environments.