MGT. 5371

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MGT. 5371 Open Systems Theory (OST) An
Overview Dr. Barry A. Macy
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TRANSFORMATION PROCESS / KEY INTERRUPTS
INPUT
OUTPUTS
FEEDBACK
The Basic Open Systems (OST) Model
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An Organization As A System
Inputs
Transformations
Outputs/ Results

• Capabilities

• Rewards/Recognition

Resources

• Competencies

• Skills

Environment

• Customers
• Employee
• Engagement
• Innovation
• Societal
• Financial/
• Business

• Vision
• Direction

• Processes

• Market
• Customers
• Competitors
• Regulators
• Other
• Stakeholders
• Suppliers
• History

• Culture(s)

• Systems

• Strategic Intent

• Technologies

• Structures

• Strategies

• Shared Leadership/
• Style

• Success
• Factors/
• Goals

• Decision Making/
• Participation

• Business
• Models

Infrastructure

• Etc.

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Open System Theory
Business Environment

• Rapid change
• Turbulence
• Unpredictability

Suppliers
Customers
Competition
Reward Recog. Sys.
Regulatory Bodies
Senior Management
T.Q.M
H.R. Sys.
Macro Structure
Technical System
Technologies
IS
Output
Input
Transformation

• Product
• Service

• Materials
• Information
• People

Processes
Social System
People
Groups Teams (Micro Structure)
Renewal Process
Feedback
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Open Systems Theory
Why Org. Models Are Useful Predict Change and
Diagnosis Problems!

• The need to understand Causes of behavior
• Problems of existing models
• Information as a system component

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SOME COMMON PROBLEMS WITH TRADITIONAL
ORGANIZATIONS

• A. INADEQUATE RESPONSE TO THE BUSINESS
• ENVIRONMENT
• B. OVER-SPECIALIZATION / FUNCTIONALIZATION
• C. DIFFICULTY WITH COORDINATION / CONTROL
• D. UNDERUTILIZATION OF HUMAN RESOURCES
• E. INEFFECTIVE DESIGN/IMPLEMENTATION OF
• TECHNOLOGIES
• F. INADEQUATE PROCESSES FOR MAKING CHANGE/
• TRANSFORMATION
• POOR TO AVERAGE CUSTOMER SATIFACTION
• NOT GROWING!!! NOT PROFITABLE!!!

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Assumptions/Characteristics of Organizations

• Dynamic/ Feedback
• Org. behavior Exists at multiple levels
• Behavior does not occur in a vacuum
• Org. are social-technical systems

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Dimensions of System Inputs
Past Managerial Behavior
Environment
Resources
Goals/Objectives (for the KPIs) - explicit
goals - implied goals of the managerial
subsystem
External environment - markets - government -
financial institutions - competitors -
suppliers - labor unions - the larger culture,
etc.
Capital Raw Materials Technologies People Inta
ngibles
Plans and policies - strategies
Critical decisions in the past Core
Values/Philosophies/ Principles (Vision Direction)
Internal environment - the immediate
supra-systems
Environmental characteristics - stability -
homogeneity
Barry A. Macy, Successful Strategic Change,
Berrett-Koehler Publishers, San Francisco, CA.
(forthcoming)
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OReilly and Pfeffers (Hidden Value) Approach to
Open Systems Theory
INPUTS
TRANSFORMATION OUTCOMES

• External Business Environment
• - Going Global
• Internal Business Environment
• Values / Philosophies
• Culture
• Business People Strategies
• Goal System
• Core Capabilities linked to
• Core Competencies
• The Management Model/
• The Business Model
• Labor Relations / Mutuality
• Status Equality
• Employment Assurances

• Organization Structure and Design
• Alignment and Consistency
• Delegation of Decision Making
• Teams
• Sharing of Information
• Pay/Rewards/Benefits
• Job Design / The Work Environment
• The Production System
• Recruitment/Selection/Orientation/
• Retention
• Performance Management System
• Human Resources/Managing and
• Investing in People
• Training/Career Development/Mobility
• Communications
• Leaders NOT Managers
• Integration of Business Processes,
• Acquisitions Open Book

• Performance
• Excellence
• Growth Development
• of its People/Employees
• Societal Responsibility
• Learnings/Lessons

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Open Systems Theory Elements and
Action-Levers Omitted by OReillys and Pfeffers
Hidden Value
INPUTS
TRANSFORMATION OUTCOMES

• External Business Environment
• Changing Demographics
• Government Regulations
• Competition
• Changing Technologies
• Marketplace / Consumers
• Customers Needs, Wants,
• and Desires
• External Labor Market
• Internal Business Environment
• The Transformation/Change
• Processes
• Employee/Employer
• Mutuality
• Clear, Concise Vision
• Direction (VDSP)
• Key Success Factors

• Macro Structure
• Demand Side (Sales, MKT., RD, etc.)
• Product Supply/Service Side (Mfg.,
• Order Entry, Warehouse, etc.)
• Customer/Commercial Innovation
• The Firms Technologies for Innovation
• IT / IS Systems
• E-Commerce
• Dot.coms (going out and coming in)
• Specific Types of Teams
• Total Quality Leadership
• Value Chain Design
• Other Organizational Processes
• and Systems (Vertical and
• Horizontal Systems and
• Processes)
• Other Business Processes
• Interdependence and Fit
• of inputs with transformation

• Customer Outcomes
• Innovation

(feedback)
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External Environmental Analysis
The external environmental analysis process
should be conducted on a continuous basis. This
process includes four activities
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Dimensions of Transformation Components
Organizational Arrangements
Informal Organization
Tasks/Jobs/ The Work
Individuals/People/ Human Resources
Group Functioning
- extent and nature of interdependence -
level of complexity (required skill) -
certainty - autonomy/control - extent of
feedback - variability - meaning fullness -
informational requirements
Demographics
Macro-structure
- informal as distinct from formal structures -
communication patterns - norms, values -
informal goals - actual decision- making -
power distribution
- Control Information System - division of
labor - grouping of tasks and individuals -
anatomical dimensions of organization -
centralization - formalization -
decision-making - integrating mechanisms -
physical location of areas - Leadership
- education - age - skill levels - ethnic
background - urban/rural - etc.
Personality differences
Inter-group relations
- need strength - self-esteem -
internal/external - perceptual biases etc.
- information flow (quality) - conflict /
cooperation perceptions
Micro Team Structure - 15 Types of Teams - Power
Control - Shared Leadership - Shared
Accountability and Responsibility -
Skills/Abilities - Co-location
Political processes and structures
- networks, cliques, coalitions
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Systems Model
Inputs 9 Key Transformations Outputs

• Macro Structures (4)
• G.O./Corp. Office
• GBU/SBU
• Value Chain
• Business Models
• 2. Jobs/Tasks/Work
• 3. Technologies
• 4. Information and Knowledge Systems
• 5. Micro Team Design
• 6. People and HRM Systems
• 7. Recognition and Reward Systems
• 8. Shared Leadership and Decision Making

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OST Eight TRANSFORMATION Categories - 1
MACRO STRUCTURE WORK/JOBS/TASKS
TECHNOLOGIES
Interdependence Complexity Challenge
Autonomy/Freedom Variety Meaningfulness
Broad/Narrow Skill Requirements
Linear/Non-linear (Knowledge Work)
Certainty/uncertainty Feedback Others

• 1. CORPORATE Office
• S.B.U. (Global and Regional)
• and Business/Product Teams
• 3. Value Chain Demand and
• Supply sides
• 4. Business Model
• 5. Enterprise Teams
• Concepts
• Coordination/interface
• Communication
• Power Control (Decision Making)-
• Redistribution of Power Control
• Reporting
• Capabilities
• Conflict
• Complexity
• Information
• Centralization

Batch/ Robotics/FMS Automation CAD/CAM
E-Learning Systems Video/Electronic Computer
Control Material Handling Others
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OST Eight TRANSFORMATION Categories - 2
INFORMATION AND MICRO TEAM DESIGN
PEOPLE/HR SYSTEMS KNOWLEDGE SYSTEMS
People Skills Capabilities Abilities
Multi-skill Demographics Education Age
Background Personality Skills
Differences Human Resource Systems
Coaching/Development/ Training Learning
Systems Performance Management
Systems Communication Systems Career
Development Mentoring Others
Team Leader Multi-functional Members
Work/Jobs/Tasks Diversity of Members Physical
Location Capabilities Informal vs. Formal
Teams Communication Norms/Values
Goals/KPIs Conflict Cooperation Vertical
and/or Horizontal Structure Others
EDI SAP Paper/Computer E-Learning
Systems Supplier to Firm to Customer IS
Availability/Access Decision Making
Information vs. Data E-Learning/Knowledge
Systems Others
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Recognition/Financial Reward Systems
Shared Leadership and Decision Making

• Everyone is expected to be
• a leader (work without) a
• Supervisor/Manager/Boss)
• Everyone is expected to perform
• Leadership roles.
• Re-distribution of Power and
• Control (Shared Decision
• Making)
• Others

• Recognition Systems
• Time-off (with pay)
• Pat-on-back/Job well done
• Employee of month/year
• Free Vacations
• Free Gifts
• Promotions
• Work at home
• Others

• Pay Systems
• Base Pay
• Gain Sharing
• Bonus Pay
• Multi-skill Systems
• Stock Equity
• Stock Options

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OPEN SYSTEMS ASSESSMENT MODEL SOME OTHER
OUTCOMES / RESULTS / OUTPUTS
Three types of Results Organizational
Effectiveness
KEY STAKEHOLDERS FIRST ORDER
SECOND ORDER THIRD ORDER

• Productivity
• Product/Service
• Quality
• Costs
• Time to Market
• Delivery

• Profitability
• Innovation
• Return on Assets
• ROCI

• Market Share
• Stock Price

BUSINESS

• Behaviors
• Lateness
• Absences
• Accidents (Safety)
• Turnover
• Grievances
• Attitudes
• Job Security
• Job Satisfaction
• Pay Satisfaction

PEOPLE / EMPLOYEES QUALITY OF WORK LIFE

• Trust
• Flexibility
• Commitment

• Employees
• Growth
• Development
• Employee
• Learnings

SOCIETY (SOCIAL) RESPONSIBILITY

• Adopt a School
• Community
• Philanthropies

• Environmental
• Spills
• Air/ Water Quality

Societal Learning Societal Growth Development
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OTHER OUTPUT DIMENSIONS OF SYSTEM
ORGANIZATIONAL EFFECTIVENESS HUMAN
RESOURCES
SHORT-TERM PRODUCT QUALITY PRODUCTIVITY DELIVER
Y / TURNAROUND COSTS MID-RANGE GOAL
ATTAINMENT ADAPTABILITY COOPERATION INNOVATION
LONG-TERM PROFITABILITY SURVIVAL
ABSENCES LATENESS TURNOVER SAFETY HOUSEKEEPING GRO
WTH DEVELOMPENT JOB SECURITY SATISFACTION
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THE NATURE OR ORGANIZATIONS

• ORGANIZATIONS ARE--
• COMPLEX SYSTEMS
• OPEN SYSTEMS (I T O)
• External Business Environment
• Internal Business Environment (6 elements)
• DESIGNED TO SERVE A PURPOSE
• (MISSION DRIVEN)
• TRANSFORMATION SYSTEMS - (8 elements)
• RESULTS (5 types)
• BASED UPON CHOICES
• ADAPTIVE CULTURES
• FLEXIBILITY
• ADAPTIVE TO CHANGING BUSINESS
• ENVIRONMENT

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FORCES FROM THE STRATEGIC BUSINESS ENVIRONMENT
Markets
Workforce Trends
The Industry
Customers
Social Trends
THE ORGANIZATION
Special Interests
Competition
Labor Supply
The Global Competitive Environment
Vendor/Suppliers
Physical Setting
Technology
The Corporation
Governments
Financial Stakeholders
Stockholders Wall Street Owners
The Economy
(Local/ National)
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The Internal Business Environment

• Culture/History
• Core Capabilities
• Vision Direction Core Values, Philosophies,
  Principles and
• the other 9 Dimensions
• Strategies (corporate and business)
• Key Success Factors/Goals
• Business Models
• Mutuality
• Transformational Change Processes

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4. The objective is to create a High
Performance Organization (HPO) that
achieves an optimum balance in meeting the
interdependent requirements of the
Business Environment, the Technical System and
the Social System. (In traditional
organizations, some requirements usually
dominate the others.)
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The Evolution of Management Models
Organization Flexibility
Internal Environment
External Environment
Power Control
Source Quinn et. al., Becoming a Master Manager
(2003)
Macro Structure 26
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The Evolution of Management Models
Organization Flexibility
Open Systems Model ?
Human Relations Model ?
Internal Environment
External Environment
Rational Goal Model
? Internal Process Model
Power Control
Source Quinn et. al., Becoming a Master Manager
(2003)
Macro Structure 27
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The Evolution of Management Models
Organization Flexibility
Open Systems ?
Human Relations ?
Innovation, Adaptation
Commitment, Morale
Growth, Resource acquisition
Participation, Openness
Internal Environment
External Environment
Productivity, Accomplishment
Documentation, Information management
Direction, Goal clarity
Stability, Control
Rational Goal
? Internal Process
Power Control
Source Quinn et. al., Becoming a Master Manager
(2003)
Macro Structure 28
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The Evolution of Management Models
Toward de-centralization, differentiation
Organization Flexibility
Human Relations ?
Open Systems ?
Innovation, Adaptation
Commitment, Morale
Participation, Openness
Growth, Resource acquisition
Toward maintenance of the system
Toward competitive position of system
Internal Environment
External Environment
Productivity, Accomplishment
Documentation, Information management
Direction, Goal clarity
Stability, Control
Rational Goal
? Internal Process
Power Control
Toward Centralization, integration
Source Quinn et. al., Becoming a Master Manager
(2003)
Macro Structure 29
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The Evolution of Management Models
Toward de-centralization, differentiation
Organization Flexibility
Toward expansion, change
Toward Development Of human resources
Human Relations Model ?
Open Systems Model ?
Innovation, Adaptation
Commitment, Morale
Growth, Resource acquisition
Participation, Openness
External Environ- ment
Toward maintenance of the system
Internal Environ- ment
Toward competitive position of system
Productivity, Accomplishment
Documentation, Information management
Direction, Goal clarity
Stability, Control
Rational Goal Model
? Internal Process Model
Toward consolidation, continuity
Toward maximization of output
Power Control
Toward Centralization, integration
Source Quinn et. al., Becoming a Master Manager
(2003)
Macro Structure 30
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In the new economy, human capital, perhaps more
than any other asset, is your organizations
greatest competitive advantage!
B.A. Macy, Successful Strategic Change,
Berrett-Koehler Publishers, San Francisco, CA
(forthcoming)