When a passerby looks at your company, he may see just a building with a bunch of people going in and out. Inside that building, however, is a living entity that is more than a group of people. Every company and every organization is a unique, organic system with interrelated subsystems working together to change the world around it and, in turn, respond to changes in the world.
A restaurant could be described as a system that turns hungry customers into satisfied patrons. A nonprofit system may transform cash donations into food for the homeless. Just like your body is more than a digestive system or a nervous system, an organization is usually comprised of several subsystems working together and affecting each other.
The systems approach views an organization as an organic and open system made of interdependent subsystems. It was first developed in the 1960s by Ludwig Von Bertalanfty, Lawrence J. Henderson, Daniel Katz, W.G. Scott, Robert L. Kahn, J.D. Thompson and W. Buckley.
Just as the human body is an organized collection of systems interacting with the environment, the same principles can apply to a company. The sales and marketing departments, production department and accounting department can be examples of subsystems all working together.
This approach not only applies to businesses but also to whole economies, in which the global economy can be seen as a system comprised of national subsystem economies. A national economy can be viewed as a system comprised of subsystem industries, which in turn can be seen as a collection of subsystem companies.
Using a systems approach, business leaders are able to look at the big picture and look at underlying patterns and trends as well as the consequences of changes in how they affect the larger environment. By understanding how components and structures within an organization affect the system as a whole, leaders have more choices available to them for creating long-term solutions to problems.
Consider the five principles of the systems approach:
- A system is made of interacting components or subsystems that are arranged together to create a unified whole.
- Subsystems should be seen in light of their relationships with each other rather than in isolation.
- An organization's system has a boundary separating the internal components from external systems.
- A system interacts with its environment, receiving information, material and energy from external systems as input and then transforming them and creating an output to other systems.
- An organizational system is dynamic in that it responds to its environment and is vulnerable to environmental changes.
In the systems approach, the organization as a whole is the primary focus rather than any individual subsystem. However, the interactions between these systems as well as the organization's interactions with its environment are also emphasized. Any changes made to one subsystem will invariably have an effect on other subsystems.
Suppose, for example, you want to double the size of your outside sales team. This should result in more sales, increasing your share of the market and increasing awareness of your company's products (environment). However, this would also increase the workload for the payroll and accounting departments, production and shipping departments, customer service and purchasing.
On a more subtle note, suppose that you are considering increasing the sales team's commission by 20%. This too should also increase sales and increase the workload in other departments, but with a systems approach, you should also be able to predict that this would affect the morale of related departments, especially when they see sales reps start coming to work in new cars.
Carefully considering the effects on the whole system is crucial to making changes within a subsystem; a business is an ecosystem and consequences are inevitable. If you actively work to curb negative consequences and anticipate them, you have a better likelihood of successfully making changes and running your business most efficiently.