The rapid pace of the global economy is forcing companies to convert from a traditional bureaucratic or hierarchical organizational structure to an open system organizational structure. With the open system, companies can form alliances, produce products faster and generally compete in the rapidly expanding global economy.
According to BusinessDictionary.com, an open system take inputs from the environment and processes, transforms and sends them back to the environment as economic output. The word "environment" refers to a network of customers, suppliers and others who are either directly or indirectly affected by the operations of an organization. Therefore, an open system organizational structure is an organizational structure that facilitates and embraces an open system philosophy.
Organizational theory regards a traditional hierarchical organization as a closed system because it makes decisions internally, independent of input from the outside world. However, research completed in the 1960s indicated that traditional bureaucratic organizations cannot succeed in markets where products change rapidly, according to ReferenceForBusiness.com.
A good example of an open system organizational structure is the rise of the virtual corporation where companies, their suppliers as well as customers use information networks to interact and collaborate as one large virtual corporation. This is an open system because the suppliers and customers serve as the environment, feeding input back to companies. Companies then process the input and produce better products for customers and better interactions with suppliers.