Open Systems Theory in Business

by Devra Gartenstein - Updated September 26, 2017
Business colleagues in meeting

Open systems theory is a way of thinking about dynamic systems, or systems that interact with their environments. All businesses are dynamic systems, evolving and changing in response to feedback. Open systems theory is useful for businesses because it provides a framework for thinking about processes such as change — a regular part of running a business.

Change

Change in open systems is the process of adapting to shifting circumstances. Open systems theory provides tools for thinking about change, such as descriptions and explanations of general patterns and obstacles. Successful dynamic change involves paying attention to feedback and integrating this information rather than proceeding with a rigid idea of how change should occur. A business that changes its product line by focusing on its most successful products is effecting dynamic change by shifting in response to information about customer demand.

Links and Loops

Links are connections between elements of a system. A business is a loop, or series of links that mutually reinforce one another. For a restaurant business, a decline in quality might be the product of a series of links. The owner cuts costs because he's strapped for cash but then finds himself with even less money because existing customers stop patronizing his establishment because the quality has declined. Lack of money is linked to lack of customers, which is linked to cutting corners, which is linked back to lack of money.

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Boundaries

Organizational systems have boundaries, or separations from the environment with which they interact. Because they interact with their environments, their boundaries must be porous, or capable of letting information in and out. A company's boundaries might be its company culture, or the set of shared references and assumptions that help its employees and management work toward shared goals. This boundary must be permeable, however: It must be flexible enough that employees can adjust behavior and expectations in response to customer needs.

Organizational Learning

For a dynamic system to effectively change, it must engage in organizational learning, which involves different parts of the system learning and then building on this improved knowledge by spreading information throughout the system. A business performs organizational learning when it introduces a new product, observes the influence of various market factors on its success, and then uses the successful elements of the venture when launching its next new product. Organizational learning involves identifying and providing opportunities for individual members of the organization to grow to make the entire system more knowledgeable.

About the Author

Devra Gartenstein founded her first food business in 1987. In 2013 she transformed her most recent venture, a farmers market concession and catering company, into a worker-owned cooperative. She does one-on-one mentoring and consulting focused on entrepreneurship and practical business skills.

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