2627306.pdfSystems Theory and Management

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Systems Theory and Management

Author(s): Richard A. Johnson, Fremont E. Kast and James E. RosenzweigReviewed work(s):Source: Management Science, Vol. 10, No. 2 (Jan., 1964), pp. 367-384Published by: INFORMSStable URL: http://www.jstor.org/stable/2627306 .

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MANAGEMENT SCIENCEVol. 10, No. 2, January, 1964Printed in U.S.A.SYSTEMS THEORY AND MANAGEMENT*

RICHARD A. JOHNSON, FREMONT E. KAST, AND JAMES E. ROSENZWEIGUniversity of Washington,Seattle

Ludwig von Bertalanffy, in 1951, and Kenneth Boulding, in 1956,wrote articles which have provided a modern foundation for general systemstheory [1, 21.We build on that foundation in applying general systems theoryto management.The general theory is reviewed for the reader. Next, it is applied as a theoryfor business, and an illustrative model of the systems concept is developed toshow the business application. Finally, the systems concept is related to thetraditional functions of a business, i.e., planning, organizing, control, andcommunications.

IntroductionThe systems concept can be a useful way of thinking about the job of manag-

ing. It provides a framework for visualizing internal and external environmentalfactors as an integrated whole. It allows recognition of the proper place andfunction of subsystems. The systems within which businessmen must operateare necessarily complex. However, management via systems concepts fosters away of thinking which, on the one hand, helps to dissolve some of the complexityand, on the other hand, helps the manager recognize the nature of the complexproblems and thereby operate within the perceived environment. It is importantto recognize the integrated nature of specific systems, including the fact thateach system has both inputs and outputs and can be viewed as a self-containedunit. But it is also important to recognize that business systems are a part oflarger systems-possibly industry-wide, or including several, maybe many,companies and/or industries, or even society as a whole. Further, businesssystems are in a constant state of change-they are created, operated, revised,and often eliminated.

What does the concept of systems offer to students of management and/orto practicing executives? Is it a panacea for business problems which will replacescientific management, human relations, management by objective, operationsresearch, and many other approaches to, or techniques of, management? Perhapsa word of caution is applicable initially. Anyone looking for "cookbook" tech-niques will be disappointed. In this article we do not evolve "ten easy steps"to success in management. Such approaches, while seemingly applicable and easyto grasp, usually are shortsighted and superficial. Fundamental ideas, such as thesystems concept, are more difficult to comprehend, and yet they present a greateropportunity for a large-scale payoff.

Systems Defined'A system is "an organized or complex whole; an assemblage or combination

of things or parts forming a complex or unitary whole." The term system covers* Received February 1963.1 For a more complete discussion see: Johnson, Kast, and Rosenzweig [3], pp. 4-6, 91, 92.

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368 JOHNSON, KAST, AND ROSENZWEIGan extremely broad spectrum of concepts. For example, we have mountain sys-tems, river systems, and the solar system as part of our physical surroundings.The body itself is a complex organism including the skeletal system, the cir-culatory system, and the nervous system. We come into daily contact with suchphenomena as transportation systems, communication systems (telephone, tele-graph, etc.), and economic systems.

A science often is described as a systematic body of knowledge; a completearray of essential principles or facts, arranged in a rational dependence or con-nection; a complex of ideas, principles, laws, forming a coherent whole. Scienitistsendeavor to develop, organize, and classify material into interconnected dis-ciplines. Sir Isaac Newton set forth what he called the "system of the world."Two relatively well known works which represent attempts to integrate a largeamount of material are Darwin's Origin of the Species and Keynes's GeneralTheory of Employment,Interest, and Money. Darwin, in his theory of evolution,integrated all life into a "system of nature" and indicated how the myriad ofliving subsystems were interrelated. Keynes, in his general theory of employment,interest, and money, connected many complicated natural and man-made forceswhich make up an entire economy. Both men had a major impact on man'sthinking because they were able to conceptualize interrelationships amongcomplex phenomena and integrate them into a systematic whole. The word sys-tem connotes plan, method, order, and arrangement. Hence it is no wonder thatscientists and researchers have made the term so pervasive.The antonym of systematic is chaotic. A chaotic situation might be describedas one where "everything depends on everything else." Since two major goalsof science and research in any subject area are explanation and prediction, sucha condition cannot be tolerated. Therefore there is considerable incentive todevelop bodies of knowledge that can be organized into a complex whole, withinwhich subparts or subsystems can be interrelated.While much research has been focused on the analysis of minute segments ofknowledge, there has been increasing interest in developing larger frames ofreference for synthesizing the results of such research. Thus attention has beenfocused more and more on over-all systems as frames of reference for analyticalwork in various areas. It is our contention that a similar process can be usefulfor managers. Whereas managers often have been focusing attention on par-ticular functions in specialized areas, they may lose sight of the over-all objectivesof the business and the role of their particular business in even larger systems.These individuals can do a better job of carrying out their own responsibilitiesif they are aware of the "big picture." It is the familiar problem of not being ableto see the forest for the trees. The focus of systems management is on providing abetter picture of the network of subsystems and interrelated parts which gotogether to form a complex whole.Before proceeding to a discussion of systems theory for business, it will bebeneficial to explore recent attempts to establish a general systems theory cover-ing all disciplines or scientific areas.



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SYSTEMS THEORY AND MANAGEMENT 369General Systems Theory

General systems theory is concerned with developing a systematic, theoreticalframework for describing general relationships of the empirical world. A broadspectrum of potential achievements for such a framework is evident. Existingsimiliarities in the theoretical construction of various disciplines can be pointedout. Models can be developed which have applicability to many fields of study.An ultimate but distant goal will be a framework (or system of systems)which could tie all disciplines together in a meaningful relationship.There has been some development of interdisciplinary studies. Areas such associal psychology, biochemistry, astrophysics, social anthropology, economicpsychology, and economic sociology have been developed in order to emphasizethe interrelationships of previously isolated disciplines. More recently, areas ofstudy and research have been developed which call on numerous subfields.For example, cybernetics, the science of communication and control, calls onelectrical engineering, neurophysiology, physics, biology, and other fields. Opera-tions research is often pointed to as a multidisciplinary approach to problemsolving. Information theory is another discipline which calls on numerous sub-fields. Organization theory embraces economics, sociology, engineering, psy-chology, physiology, and anthropology. Problem solving and decision makingare becoming focal points for study and research,drawingon numerous disciplines.With these examples of interdisciplinary approaches, it is easy to recognize asurge of interest in larger-scale, systematic bodies of knowledge. However, thistrend calls for the development of an over-all framework within which thevarious subparts can be integrated. In order that the interdisciplinary movementdoes not degenerate into undisciplined approaches, it is important that somestructure be developed to integrate the various separate disciplines while retain-ing the type of discipline which distinguishes them. One approach to providingan over-all framework (general systems theory) would be to pick out phenomenacommon to many different disciplines and to develop general models which wouldinclude such phenomena. A second approach would include the structuring of ahierarchy of levels of complexity for the basic units of behavior in the variousempirical fields. It would also involve development of a level of abstraction torepresent each stage.We shall explore the second approach, a hierarchy of levels, in more detailsince it can lead toward a system of systems which has application in mostbusinesses and other organizations. The reader can undoubtedly call to mindexamples of familiar systems at each level of Boulding's classification model.1. The first level is that of static structure. It might be called the level offrameworks; for example, the anatomy of the universe.2. The next level is that of the simple dynamic system with predetermined,necessary motions. This might be called the level of clockworks.3. The control mechanism or cybernetic system, which might be nicknamedthe level of the thermostat.The system is self regulating in maintaining equi-librium.



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370 JOHNSON, KAST, AND ROSENZWEIG4. The fourth level is that of the "open system," or self-maintaining structure.This is the level at which life begins to differentiate from not-life: it might be

called the level of the cell.5. The next level might be called the genetic-societal level; it is typified by theplant, and it dominates the empirical world of the botanist.6. The animal system level is characterized by increased mobility, teleologicalbehavior, and self-awareness.7. The next level is the "human" level, that is, of the individual human beingconsidered as a system with self-awareness and the ability to utilize languageand symbolism.8. The social system or systems of human organization constitute the nextlevel, with the consideration of the content and meaning of messages, the natureand dimensions of value systems, the transcription of images into historicalrecord, the subtle symbolizations of art, music and poetry, and the complexgamut of human emotion.9. Transcendental systems complete the classification of levels. These are theultimates and absolutes and the inescapables and unknowables, and they alsoexhibit systematic structure and relationship.2

Obviously, the first level is most pervasive. Descriptions of static structuresare widespread. However, this descriptive cataloguing is helpful in providing aframework for additional analysis and synthesis. Dynamic "clockwork"systems,where prediction is a strong element, are evident in the classical natural sciencessuch as physics and astronomy; yet even here there are important gaps. Adequatetheoretical models are not apparent at higher levels. However, in recent yearsclosed-loop cybernetic, or "thermostat," systems have received increasing atten-tion. At the same time, work is progressing on open-loop systems with self-maintaining structures and reproduction facilities. Beyond the fourth level wehardly have a beginning of theory, and yet even here system description viacomputer models may foster progress at these levels in the complex of generalsystems theory.Regardless of the degree of progressat any particular level in the above scheme,the important point is the concept of a general systems theory. Clearly, thespectrum, or hierarchy, of systems varies over a considerable range. However,since the systems concept is primarily a point of view and a desirable goal, ratherthan a particular method or content area, progress can be made as researchproceeds in various specialized areas but within a total system context.With the general theory and its objectives as background, we direct our atten-tion to a more specific theory for business, a systems theory which can serve as aguide for management scientists and ultimately provide the framework forintegrated decision making on the part of practicing managers.

Systems Theory For BusinessThe biologist Ludwig von Bertalanffy has emphasized the part of general

systems theory which he calls open systems [1]. The basis of his concept is that a2 Boulding [2], pp. 202-205.



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SYSTEMS THEORY AND MANAGEMENT 371living organism is not a conglomeration of separate elements but a definite sys-tem, possessing organization and wholeness. An organism is an open system whichmaintains a constant state while matter and energy which enter it keep changing(so-called dynamic equilibrium). The organism is influenced by, and influences,its environment and reaches a state of dynamic equilibrium in this environment.Such a description of a system adequately fits the typical business organization.The business organization is a man-made system which has a dynamic interplaywith its environment-customers, competitors, labor organizations, suppliers,government, and many other agencies. Furthermore, the business organizationis a system of interrelated parts working in conjunction with each other in orderto accomplish a number of goals, both those of the organization and those ofindividual participants.A common analogy is the comparison of the organization to the human body,with the skeletal and muscle systems representing the operating line elementsand the circulatory system as a necessary staff function. The nervous systemis the communication system. The brain symbolizes top-level management, orthe executive committee. In this sense an organization is represented as a self-maintaining structure, one which can reproduce. Such an analysis hints at thetype of framework which would be useful as a systems theory for business-onewhich is developed as a system of systems and that can focus attention at theproper points in the organization for rational decision making, both from thestandpoint of the individual and the organization.

The scientific-management movement utilized the concept of a man-machinesystem but concentrated primarily at the shop level. The so-called "efficiencyexperts" attempted to establish procedures covering the work situation andproviding an opportunity for all those involved to benefit-employees, managers,and owners. The human relationists, the movement stemming from the Haw-thorne-Western Electric studies, shifted some of the focus away from the man-machine system per se to interrelationships among individuals in the organiza-tion. Recognition of the effect of interpersonal relationships, human behavior,and small groups resulted in a relatively widespread reevaluation of managerialapproaches and techniques.The concept of the business enterprise as a social system also has receivedconsiderable attention in recent years. The social-system school looks uponmanagement as a system of cultural interrelationships. The concept of a socialsystem draws heavily on sociology and involves recognition of such elements asformal and informal organization within a total integrated system. Moreover,the organization or enterprise is recognized as subject to external pressure fromthe cultural environment. In effect, the enterprise system is recognized as apart of a larger environmental system.

Since World War II, operations researchtechniques have been applied to large,complex systems of variables. They have been helpful in shop scheduling, infreightyard operations, cargo handling, airline scheduling, and other similarproblems. Queuing models have been developed for a wide variety of traffic-and service-type situations where it is necessary to programthe optimum numberof "servers" for the expected "customer" flow. Management-science techniques



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372 JOHNSON, KAST, AND ROSENZWEIGhave undertaken the solution of many complex problems involving a large num-ber of variables. However, by their very nature, these techniques must structurethe system for analysis by quantifying system elements. This process of abstrac-tion often simplifies the problem and takes it out of the real world. Hence thesolution of the problem may not be applicable in the actual situation.

Simple models of maximizing behavior no longer suffice in analyzing businessorganizations. The relatively mechanical models apparent in the "scientificmanagement" era gave way to theories represented by the "human relations"movement. Current emphasis is developing around "decision making" as aprimary focus of attention, relating communication systems, organization struc-ture, questions of growth (entropy and/or homeostasis), and questions of un-certainty. This approach recognizes the more complex models of administrativebehavior and should lead to more encompassing systems that provide the frame-work within which to fit the results of specialized investigations of managementscientists.The aim of systems theory for business is to develop an objective, under-standable environment for decision making; that is, if the system within whichmanagers make the decisions can be provided as an explicit framework, then suchdecision making should be easier to handle. But what are the elements of thissystems theory which can be used as a frameworkfor integrated decision making?Will it require wholesale change on the part of organization structure and ad-ministrative behavior? Or can it be woven into existing situations? In general,the new concepts can be applied to existing situations. Organizations will remainrecognizable. Simon makes this point when he says:1. Organizations will still be constructed in three layers; an underlying systemof physical production and distribution processes, a layer of programmed (andprobably largely automated) decision processes for governing the routine day-to-day operation of the physical system, and a layer of nonprogrammed decisionprocesses (carried on in a man-machine system) for monitoring the first-levelprocesses, redesigning them, and changing parameter values.

2. Organizations will still be hierarchical in form. The organization will bedivided into major subparts, each of these into parts, and so on, in familiar formsof departmentalization. The exact basis for drawing departmental lines maychange somewhat. Product divisions may become even more important thanthey are today, while the sharp lines of demarcation among purchasing, manu-facturing, engineering, and sales are likely to fade.3We agree essentially with this picture of the future. However, we want toemphasize the notion of systems as set forth in several layers. Thus the systemsthat are likely to be emphasized in the future will develop from projects orprograms, and authority will be vested in managers whose influence will cutacross traditional departmental lines. This concept will be developed in more de-tail throughout this article.There are certain key subsystems and/or functions essential in every business

3Simon [4], pp. 49-50. (Italics by authors.)



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SYSTEMS THEORY AND MANAGEMENT 373organization which make up the total information-decision system, and whichoperate in a dynamic environmental system subject to rapid change. The sub-systems include:1. A sensor subsystem designed to measure changes within the system andwith the environment.2. An informationprocessingsubsystemsuch as an accounting, or data process-ng system.

3. A decision-making subsystem which receives information inputs and out-puts planning messages.4. A processing subsystemwhich utilizes information, energy, and materialsto accomplish certain tasks.5. A control component which ensures that processing is in accordance withplanning. Typically this provides feedback control.6. A memory or information storage subsystem which may take the form ofrecords, manuals, procedures, computer programs, etc.

A goal setting unit will establish the long range objectives of the organization,and the performance will be measured in terms of sales, profits, employment,etc. relative to the total environmental system.This is a general model of the systems concept in a business firm. In the fol-lowing section a more specific model illustrating the application of the systemsconcept is established.

An Illustrative Model of The Systems ConceptTraditionally, business firms have not been structured to utilize the systems

concept. In adjusting the typical business structure to fit within the frameworkofmanagement by system, certain organizational changes may be required. It isquite obvious that no one organizational structure can meet operational re-quirements for every company. Each organization must be designed as a uniquesystem. However, the illustrative model set forth would be generally operablefor medium- to large-size companies which have a number of major products anda variety of management functions. The primary purpose of this model is toillustrate the application of systems concepts to business organizations and thepossible impact upon the various management functions of planning, organizing,communication and control. The relationships which would exist among thetop management positions are shown in Figure 1.The master planning council would relate the business to its environimentalsystem, and it would make decisions relative to the products of services thecompany produced. Further, this council would establish the limits of an operat-ing program, decide on general policy matters relative to the design of operatingsystems, and select the director for each new project. New project decisions wouldbe made with the assistance and advice of the project research and development,market research, and financial groups. Once the decision was made, the resourceallocation committee would provide the facilities and manpower for the newsystem, and supply technical assistance for systems design. After the system



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374 JOHNSON, KAST, AND ROSENZWEIGTHESYSTEMSMODEL:TOPMANAGEMENT

R PRESIDENT O

_ R AND DFAClUTATIN.AJOR.PGROUP

FINANCIAL MAST SSTER SGROUP PLANNINGOUNCIL.

S A . C MARKETESEARCHGROUP

|RESOURCEALLOCATION.OPR 1TONSCOMMITTEE COMMITTEE

FACIUTATING MAJOR ROJECT- MANPOWER. _ l ~SYSEMS . SYSTEMS

- FACILITIES A B C A B C

SYSTEMSDESIGN

FI GURE Ihad been designed, its management would report to the operations committeeas a major project system, or as a facilitating system.Facilitating systems would include those organized to produce a service ratherthan a finished product. Each project system would be designed toward beingself-sufficient. However, in many cases this objective may not be feasible oreconomical. For example, it may not be feasible to include a large automatedmill as a component of a major project system, but the organization as a whole,including all of the projects, might support this kind of a facility. A facilitatingsystem, would be designed, therefore, to produce this kind of operating service



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SYSTEMS THEORY AND MANAGEMENT 375for the major project systems. The output of the facilitating system would bematerial input for the project system and a fee should be charged for this input,just as if the input had been purchased from an outside source.A soap manufacturer could have, for example, major project systems in handsoap, laundry soap, kitchen soap, and tooth paste. A facilitating system mightbe designed to produce and sell containers to the four project systems.Operating Systems

All operating systems would have one thing in common-they would use acommon language for communicating among themselves, and with higher levelsAN OPERATINGYSTEM MODEL

SYSTEMSEVIEW PROJECTMANAGERCOMMITTEE

TECHNICALNFORMATIONINPUTSYSTEM

INFORMATION4 INPUTLPROCESSING INFORMATIONSTORAG ALLOCATION INPUTSYSTEMPROCESS T_CONTROL MATERIAL

INPUT SYSTEM

SYSTEM

OUTPUTFIGURE 2



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376 JOHNSON, KAST, AND ROSENZWEIGof management. In addition, of course, each system designed would be structuredin consideration of company-wide policies. Other than these limits, each operatingsystem would be created to meet the specific requirements of its own product orservice. A model of an operating system is shown in Fig. 2.Figure 2 illustrates the relationship of the functions to be performed and theflow of operating information. The operating system is structured to (1) directits own inputs, (2) control its own operation, and (3) review and revise the designof the system as required. Input is furnished by three different groups: technicalinformation is generated as input into the processing system, and in addition,technical information is the basis for originating processing information. Bothtechnical and processing information are used by the material input system todetermine and supply materials for processing. However, corrective action, whennecessary, would be activated by input allocation.This model can be related to most business situations. For example, if thisrepresented a system to produce television sets, the technical information wouldrefer to the design of the product, processing information would include theplan of manufacture and schedule, and the material input would pertain to theraw materials and purchased parts used in the processing. These inputs of in-formation and material would be processes and become output. Process controlwould measure the output in comparison to the standard (Information Storage)obtained from input allocation, and issue corrective information whenever thesystem failed to function according to plan. The design of the system would bereviewed continually and the components rearranged or replaced when thesechanges would improve operating efficiency.Basically, the operating systems would be self sustaining with a high degree ofautonomy. Therefore, they could be integrated into the over-all organizationalstructure (Figure 1) with a minimum of difficulty.

Systems Concepts and ManagementManagers are needed to convert the disorganized resources of men, machines,

and money into a useful and effective enterprise. Essentially, management isthe process whereby these unrelated resources are integrated into a total systemfor objective ccomplishment.A manager gets things done by working with peopleand physical resources in order to accomplish the objectives of the system. Hecoordinates and integrates the activities and work of others rather than perform-ing operations himself.

Structuring a business according to the systems concept does not eliminatethe need for the basic functions of planning, organization, control, and com-munication. However, there is a definite change of emphasis, for the functions areperformed in conjunction with operation of the system and not as separateentities. In other words, everything revolves around the system and its objective,and the function is carried out only as a service to this end. This point can beclarified by reviewing each of the functions in terms of their relation to themodel of the systems concept illustrated previously.



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SYSTEMS THEORY AND MANAGEMENT 377Planning

Planningoccursat threedifferent evels in the illustrativemodel.These levelsare shownin Figure 1. First, there is top level planningby the masterplanningcouncil. Second, the project and facilitating systems must be planned andresources llocated o them.Finally, the operationof eachprojectandfacilitatingsystem mustbe planned.The master planningcouncilestablishesbroad policiesand goals and makesdecisionsrelativeto the productsor services the company produces.It decidesupon general policy matters concerningthe design of the operatingsystemsand selects the director or each new program.It is the planningcouncil whichreceivesinformational nputsfrom the environmentaland competitivesystems.It combines hese inputswith feedback nformationfrom the internalorganiza-tionalsystemand serves as the key decision-makingenterwithinthe company.Much of the decision making at this level is non-programmed, nstructured,novel, and consequential.While some of the new techniquesof managementsciencemay be helpful,majorreliancemust be placeduponmature assessmentof the entire situation by experienced,nnovativetop executives.Oncethese broad decisionshave been made, the planningfunction is trans-ferred to the resourceallocation and operating committees. They plan andallocate facilities and manpowerfor each new system and supply technicalassistancefor individualsystems design.At this planning evel it is possibletoutilize programmeddecisionmaking-operations researchand computertech-niques.The thirdlevel, planning he operationsof eachprojector facilitationsystem,is concernedprimarilywith the optimumallocationof resources o meet the re-quirementsestablishedby the planningcouncil.This planningcan most easilybe programmedo automaticdecisionsystems. However,the project directorwould still have to feed importantnon-quantifiablenputs into the system.Underthe systems conceptof planningthere is a directrelationshipbetweenthe planningperformedat each of the three levels. The first planning evel re-ceives informationalnputs from the environmentand competitivesystem andfeedback nformationrom withinthe organization. t translates his into inputsfor the next planning evel whichin turn movesto a more detailed evel of plan-ning and provides inputs for the third or projectlevel. One of the majorad-vantages of this systems model is to providea clear-cut delineationof the re-sponsibility or varioustypes of planning.This conceptfacilitatesintegratedplanningon a systemsbasis at the projectlevel withinthe organization.Giventhe inputs (premises,goals,andlimitations)from the higherlevels the projectmanagersare delegatedthe function of in-tegratedplanning or theirproject.Organization

Traditionalorganization heory emphasizedparts and segmentsof the struc-ture and is concernedwith the separationof activities into tasks or operational



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378 JOHNSON, KAST, AND ROSENZWEIGunits. It does not give sufficient emphasis to the interrelationships and integra-tion of activities. Adapting the business organization to the systems conceptplaces emphasis upon the integration of all activities toward the accomplish-ment of over-all objectives but also recognizes the importance of efficient sub-system performance.The systems basis of organization differs significantly from traditional organiza-tion structures such as line and staff or line, staff, and functional relationships.As shown in Figure 1, there are three major organizational levels, each withclearly delineated functions. The master planning council has broad planning,control, and integrative functions; the resource allocation committee has theprimary function of allocating manpower and facilities, and aids in systemsdesign for the facilitating or project systems. One of the major purposes of thistype organization is to provide an integration of activities at the most importantlevel-that is the individual project or program.

Staff specialization of skills is provided for the master planning council throughsuch groups as financial, research and development, and market research. Theiractivities, however, are integrated and coordinated by the planning council.There are specialists at the operating level who are completely integrated intoeach project system. Thus, the activities of these specialists are geared to theeffective and efficient performance of the individual project system. This typeorganization minimizes a major problem associated with staff and functionalpersonnel--their tendency to associate their activities with specialized areasrather than with the optimum performance of the over-all operation. Yet, underthe model the importance of initiative and innovation are recognized. In fact,the major function of the master planning council is planning and innovation.Specific provision for receiving information inputs from product and marketresearch are provided in the model.There are other advantages of the systems concept. Business activity isdynamic, yet the typical organization is structured to perpetuate itself ratherthan change as required. There is generally resistance by the various specializedfunctions to change in order to optimize organization performance. For example,Parkinson's Law states that there is an ever increasing trend toward hierarchiesof staff and functional personnel who are self-perpetuating and often do not con-tribute significantly to organizational effectiveness, or in extreme cases may bedysfunctional. In contrast, a system is designed to do a particular task. Whenthe task is completed, the system is disbanded.

Systems are created from a central pool of resources. Facilities, machines, andmanpower are assigned to specific projects or programs. The approach is tocreate and equip the project system with a complete arrangement of componentsto accomplish the job at hand. This may result in the duplication of certainactivities in more than one operating system; however, this disadvantage is notas serious as it may seem. For example, it may be more efficient to have severaltypewriters assigned to each system rather than a center pool of typewriters.In the first instance, the typewriters may be utilized less than 100 per cent ofthe time, but the problems of scheduling the work at the central pool, delays,



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SYSTEMS THEORY AND MANAGEMENT 379accountability, measurement of contribution, etc., would soon offset the ad-vantages of centralizing equipment. Too much effort may be spent in creatingprocessing information which accomplishes no objective other than keeping themachines utilized. A reasonable amount of redundancy or extra capacity willprovide more flexibility, protect against breakdowns, reduce flow time, requireless planning, eliminate many problems associated with interdepartmental com-munication, and reduce the amount of material handling.Obviously, there are situations when it is impractical to decentralize a par-ticular facility, because individual systems cannot utilize it sufficiently to warrantits incorporation into each separate operation. In these instances, a facilitatingsystem would be created which would sell its services to any or all of the majorproject systems. These service systems would have to justify their existence andcompete with outside vendors as suppliers to the major project system.One of the great advantages of the systems concept for organizing pertains tothe decentralization of decision making and the more effective utilization of theallocated resources to the individual project system. This has the merit ofachieving accountability for performance through the measurability of individualsystems of operation.Control

The systems concept features control as a means of gaining greater flexibilityin operation, and, in addition, as a way of avoiding planning operations whenvariables are unknown. It is designed to serve the operating system as a sub-system of the larger operation. Its efficiency will be measured by how accuratelyit can identify variations in systems operation from standard or plan, and howquickly it can report the need for correction to the activating group.

We must conclude that error is inevitable in a system which is subject tovariations in input. When the lag in time between input and output is great,more instability is introduced. Feedback can reduce the time lag; however,corrective action which is out of phase will magnify rather than overcome theerror. Every system should be designed to make its own corrections when neces-sary. That is, a means should be provided to reallocate resources as conditionschange. In our model the Systems Review Committee (see Figure 2) should beaware of any change in operating conditions which might throw the system "outof control." Replanning or redesign may be required.In controlling a system it is important to measure inputs of information,energy, and materials; and outputs of products and/or services. This will de-termine operating efficiency. In addition it may be important to establish pointsof measurement during critical or significant stages of processing. Such measure-ments would be used principally to help management analyze and evaluate theoperation and design of individual components. The best approach is to spot-light exceptions and significant changes. Management can focus their attentionon these areas. One important thing to remember is that the control group isnot a part of the processing system-it is a subsystem, serving the operatingsystem. Cost control can be used as an example to illustrate this point. The



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380 JOHNSON, KAST, AND ROSENZWEIGcost accountant must understandthat his primaryobjective is to furnish managerswith information to control costs. His task is to inform, appraise, and support;never to limit, censure, or veto. The same principle applies to every controlgroup serving the operating system.Communication

Communication plays a vital role in the implementation of the systems con-cept. It is the connecting and integrating link among the systems network. Theflow of information, energy, and material-the elements of any processingsystem-are coordinated via communication systems. As shown in the model(Figure 2) the operating system requires information transmission to ensurecontrol. Communication systems should be established to feed back informationon the various flows-information, energy, and material. Information on theeffectiveness of the planning and scheduling activities (as an example of infor-mation flow) would be helpful in adjusting the nature of this activity for thefuture. Similarly, reports on absenteeism are examples of communication con-cerning the energy flow (the people in the system) to the processing activity.Information on acceptance inspection is an example of information stemmingfrom the material flow aspect of an operating system. All of these feedbackcommunication systems provide for information flow to a sensor and a controlgroup. Comparisonbetween the information received and the information stored(the master plan for this particular operating system) would result in decisionsconcerning the transmission of corrective information to the appropriate points.Relationships within and among various project systems and between thelevels of the system as a whole are maintained by means of information flowwhich also can be visualized as a control device. Moreover, any operating systemmaintains contact with its environment through some sensory element. Referringto Figure 1, the sensory elements in this case are the groups reporting to themaster planning council. The master planning council makes decisions, con-cerning the product or service the organization will produce, based on infor-mation gained from market research, research and development, and financialactivities. In a sense, these activities function as the antenna of the organization,maintaining communication with the external environment. The master planningcouncil melds the information received through these activities with otherpremises covering the internal aspects in order to make decisions about futurecourses of action. Here again, communication or information flow can be visu-alized as a necessary element in controlling the course of action for the enterpriseas a whole. Based on the feedback of information concerning the environmentin general, the nature of competition, and the performance of the enterpriseitself, the master planning council can continue its current courses of activityor adjust in light of developing circumstances. Thus, communication or infor-mation flow facilitates the accomplishment of the primary managerial functionsof planning, organizing, and controlling.Communication by definition is a system involving a sender and a receiver,with implications of feedback control. This concept is embodied in the lowest



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SYSTEMS THEORY AND MANAGEMENT 381level projects or subsystems, in all larger systems, and in the system as a whole.Information-decision systems, regardless of formal charts or manuals, often flowacross departmental boundaries and are often geared to specific projects orprograms. The systems concept focuses on this approach and makes explicitthe information-decision system which might be implicit in many of today'sorganizations.The systems concept does not eliminate the functions of management, i.e.,planning, organizing, control, and communication. Instead, it integrates thesefunctions within a framework designed to emphasize their importance in creatingmore effective systems. Because of the great diversity of operations and en-vironments, particular missions of organizations differ and each system must beunique or at least have some unique elements. Nevertheless, the illustrativemodel and its application to the management functions of planning, organizing,controlling, and communication can serve as a point of departure in systemsdesign.

Pervasiveness of System ConceptsMany of the most recent developments in the environment of businessmenand managers have involved systems concepts. For example, the trend towardautomation involves implementation of these ideas. Automation suggests a self-contained system with inputs, outputs, and a mechanism of control. Yet the

concept also recognizes the need to consider the environment within which theautomatic system must perform. Thus the automated system is recognized as asubpart of a larger system.The kinds of automation prevalent today range in a spectrum from sophisti-cated mechanization to completely automatic, large-scale production processes.Individual machines can be programmed to operate automatically. Large groupsof machines also can be programmed to perform a series of operations, withautomatic materials-handling devices providing connecting links among com-ponents of the system. In such a system, each individual operation could bedescribed as a system and could be related to a larger system covering an entireprocessing operation. That particular processing operation could also be part ofthe total enterprise system, which in turn can be visualized as a part of anenvironmental system.Completely automated processing systems such as oil refineries are also com-monplace today. In such cases the entire process from input of raw material tooutput of finished products is automated with preprogrammed controls used toadjust the process as necessary, according to information feedback from theoperation itself.

The systems concept is also apparent in other aspects of automation. Theabove examples deal with physical processing; another phase which has beenautomated is information flow. With the introduction of large-scale, electronic-data-processing equipment, data-processing systems have been developed formany applications. Systems concepts are prevalent, with most applications builtaround the model of input-processor-output and with feedback control established



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382 JOHNSON, KAST, AND ROSENZWEIGwithin the instructions developed to guide the processing of data. Here again,there is an entire spectrum of sophistication leading from simple, straightforwarddata-reduction problems to elaborate, real-time data-processing systems.Physical distribution systems have received increasing attention on the partof manufacturers and shippers. The concepts of logistics, or materials manage-ment, have been used to emphasize the flow of materials through distributionchannels. The term rhochrematicshas been coined to connote the flow processfrom raw-material sources to final consumer.4 In essence, these ideas embracesystems concepts because emphasis is placed on the total system of materialflow rather than on functions, departments, or institutions which may be in-volved in the processing.In recent years increasing attention has been focused upon massive engineeringprojects. In particular, military and space programs are becoming increasinglycomplex, thus indicating the need for integrating various elements of the totalsystem. Manufacturing the product itself (a vehicle or other hardware) is quitecomplex, often involving problems of producibility with requirements of ex-tremely high reliability. This is difficult to ensure for individual components orsubsystems. In addition, each subsystem also must be reliable in its interre-lationship with all other subsystems. Successful integration of subcomponents,and hence successful performance of a particular product, must also be integratedwith other elements of the total system. For example, the functioning of theNike-Zeus antimissile missile must be coordinated with the early warningsystem, ground facilities, and operating personnel. All elements must functionas an operating, integrated whole.The previous discussion has emphasized the mechanistic and structural aspectsof the systems concept. Yet, we cannot forget that business organizations aresocial systems; we are dealing with man-made systems. Obviously, a great dealcould be said about the possible consequences of applying systems concepts tohuman relationships, but such a task is beyond the scope of this article. However,in discussing the impact of the systems concept it should not be assumed thatpeople basically resist systems. Much of man's conscious activities since thedawn of history has been geared to creating system out of chaos. Man does notresist systematization of his behavioral patterns per se. Rather, the normalhuman being seeks satisfactory systems of interpersonal relationships whichguide his activities. Without systematization, behavior would be random, non-goal-oriented, and unpredictable. Certainly, our complex, modern, industrialsociety demands more systemized human behavior than older, less-structuredsocieties. A common characteristic in a rapidly advancing society is to makesystems of interpersonal relationship more formal. While many of these systemshave been implicit in the past, they are becoming more explicit. This remainsone of the basic precepts of our systems model; systematic interpersonal relation-

4 Rhochrematics comes from two Greek roots; rhoe, which means a flow (as a river orstream), and chrema, which stands for products, materials, or things (including informa-tion). The abstract ending -ics has been added, as for any of the sciences.



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SYSTEMS THEORY AND MANAGEMENT 383ships are necessary for accomplishing group objectives and an effective organi-zational system should be designed to meet this need.

SummaryGeneral systems theory is concerned with developing a systematic, theoreticalframework for describing general relationships of the empirical world. While a

spectrum, or hierarchy of systems can be established over a considerable range,the systems concept is also a point of view and a desirable goal, rather than aparticular method or content area. Progress can be made as research proceeds invarious specialized areas but within a total system context.The business organization is a man-made system which has a dynamic inter-play with its environment-customers, competitors, labor organizations, sup-pliers, government, and many other agencies. In addition, the business organi-zation is a system of interrelated parts working in conjunction with each otherin order to accomplish a number of goals, both those of the organization andthose of individual participants. This description parallels that of open systemsin general which maintain a constant state while matter and energy which enterthem keep changing; that is, the organisms are influenced by, and influencetheir environment and reach a state of dynamic equilibrium within it. Thisconcept of the organization can be used by practicing managers in order tointegrate the various ongoing activities into a meaningful total system. Regard-less of specific adjustments or organizational arrangements, there are certainsubsystems or essential functions which make up a total information-decisionsystem. However, the exact form utilized by a particular organization maydepend upon the task orientation. We have presented a generalized illustrativemodel which indicates an approach that may be appropriate for a large segmentof modern business organizations.Managers are needed to convert disorganized resources of men, machines, andmoney into a useful, effective enterprise. Essentially, management is the processwhereby these unrelated resources are integrated into a total system for objectiveaccomplishment.The systems concept provides no cookbook technique, guaran-teed to provide managerial success. The basic functions are still planning, organi-zation, control, and communication. Each of these activities can be carried outwith or without emphasis on systems concepts. Our contention is that theactivities themselves can be better accomplished in light of systems concepts.Furthermore, there can be a definite change in emphasis for the entire managerialprocess if the functions are performed in light of the system as a whole and notas separate entities.The business organization as a system can be considered as a subsystem of alarger environmental system. Even industry or inter-industry systems can berecognized as sub-elements of the economic system, and the economic systemcan be regarded as a part of society in general. One of the major changes withinbusiness organizations of the future may be the breakdown of traditional func-tional specialization geared to optimizing performanceof particular departments.There may be growing use of organizational structures designed around projects



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384 JOHNSON, KAST, AND ROSENZWEIGand information-decision systems. The systems concept calls for integration, intoa separate organizational system, of activities related to particular projects orprograms. This approach currently is being implemented in some of the moreadvanced-technology industries.

The breakdown of business organizations into separate functional areas hasbeen an artificial organizational device, necessary in light of existing conditions.Management-science techniques, computer simulation approaches, and infor-mation-decision systems are just a few of the tools which will make it possiblefor management to visualize the firm as a total system. This would not havebeen possible two decades ago; it is currently becoming feasible for some com-panies; and it will become a primary basis for organizing in the future.

References1. BERTALANFFY, L. VON, "General System Theory: A New Approach to Unity of Science,"Human Biology, December, 1951, pp. 303-361.2. BOULDING, K., "General Systems Theory: The Skeleton of Science," ManagementScience, April, 1956, pp. 197-208.3. JOHNSON, R. A., KAST, F. E. AND ROSENZWEIG, J. E., The Theory and ManagementofSystems, McGraw-Hill Book Company, Inc., New York, 1963.4. SIMON, H. A., The New Science of ManagementDecision, Harper & Brothers, New York,

1960.

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