Lecture - 02An Overview – II
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Welcome to this course Organization Theory Structure and Design. Now, we will talk aboutmodule 2. So, as you see that we are talking about part 1 that is introduction to organizationtheory and we are covering an overview to this course. We have completed module 1, now letus see what we will talk about in module 2. So, we will discuss systems perspective, then wewill talk about lifecycle perspective and then we will end up discussing how systems and lifecycles are part of biological metaphor.
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Now, let us look at what is this biological metaphor. A metaphor is a popular device formaking comparisons. It can be extremely helpful for explaining or providing insights into theworking of two phenomena, one of which you already understand fairly well.So, in this module we are going to look at organizations, a phenomenon with which we willassume you are technically unfamiliar, as if they were living organisms like plants, animals orhuman beings (phenomenon with which we will assume you are reasonably familiar). So, wecall this comparison the biological metaphor.(Refer Slide Time: 01:40)
One caveat before we proceed. Some scholars have questioned whether the biologicalmetaphor is appropriate for application to organizations. For example, while few would arguethat organizations are born, grow and require continuous nourishment for survival,organizations are not predestined to die as all living organisms are. Death may be part of thebiological life, but it is not inevitable for organizations.(Refer Slide Time: 02:14)
So, the metaphor is not perfect. Nevertheless, it has become an increasingly popularconceptual framework for understanding organizations. As you will see like living organisms,organizations grow, pass through predictable stages of development, undergo a series ofpredictable transitions and deteriorate if the energy that put out is not replaced by new input.Describing organization as a system and as proceeding through a life cycle should give younew insight into their makeup.
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Now, let us look at the systems perspective. There is wide agreement among organizationtheorists that a system perspective offer important insight into the working of an organization.Moving forward we will introduce the idea of system, differentiate open from closed systemsand demonstrate how an open-system approach can help you to conceptualize better just whatit is that organization do.(Refer Slide Time: 03:23)
Let us define what a system is. A system is a set of interrelated and interdependent partsarranged in a manner that produces a unified whole. Societies are system and so, are
automobiles, power plants and human bodies. They take input, transform them and producesome output. The unique characteristic of the system viewpoint is the interrelationship ofparts within the system. Every system is characterized by two diverse forces, that isdifferentiation and integration.(Refer Slide Time: 04:00)
In a system, a specialized functions are differentiated which replace diffused global pattern.In the human body for instance the lungs, heart and liver are all distinct functions. Similarly,organizations have division, departments and like units separated out to perform specializedactivities. At the same time, in order to maintain unity among the differentiated parts andform a complete whole, every system has a reciprocal process of integration.
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In organizations, this integration is typically achieved through devices such as coordinatedlevel of hierarchy, direct supervision, rules, procedures and policies. Every system therefore,requires differentiation to identify its subparts and integration to ensure that the system doesnot break down in separate elements. Although organizations are made up of parts orsubsystems they are themselves subsystems within larger systems.(Refer Slide Time: 05:03)
Just as the human heart is a subsystem within the body’s physiological system, theDepartment of Management Studies at Indian Institute of Technology Roorkee is the
subsystem within the IIT Roorkee system. If we focus our attention on IIT Roorkee as thesystem, then we also recognize that it functions as part of large suprasystem of the IITs inIndia and campuses in Roorkee, Delhi, Kharagpur, Bombay, Kanpur and in several othercities.So, not only are there systems, but there are subsystems and suprasystems.(Refer Slide Time: 05:46)
Now, let us look at the different types of systems. Systems are classified typically as eitherclosed or open. Closed-system thinking stems primarily from the physical sciences. It viewsthe system as self-contained. Its dominant characteristic is that it essentially ignores the effectof the environment on the system. A perfect closed system would be one that receives noenergy from an outside source and from which no energy is released to the surrounding.
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More idealistic than practical, the closed-system perspective has little applicability to thestudy of organizations. The open system recognizes the dynamic interaction of the systemwith its environment. So, a simplified graphical representation of the open system appears infigure 2.1.(Refer Slide Time: 06:33)
So, this is what this systems perspective is, this open system is. So, we have those inputs,outputs and in between transformations is happening and whole of this is a system andoutside we have this environment.
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So, no student of organization could build much of a defense for viewing organization asclosed systems. Organizations obtain their raw material and human resources from theenvironment. They further depend on clients and customers in the environment to absorbtheir output. Banks take in deposits, convert these deposits into loan and other investmentsand use the resulting profits to maintain themselves, to grow and to pay dividend and taxes.(Refer Slide Time: 07:21)
The bank system therefore, interacts actively with its environment which is made up ofpeople with saving to invest, other people in need for loans, potential employers looking for
work, regulatory agency and the like. Figure 2.2 provides a more complex picture of an opensystem as it would apply to an industrial organization.(Refer Slide Time: 07:43)
So, this is the more complex picture of that. So, now, you have input that is material, laborand capital. Then the technical processing, the core is happening, (Refer Time: 07:55) outputis the finished product, then it goes to the customer. Now, then the receipt of revenuecustomer pays, goes to the creditors as wages, to the labor force and as repayment of the loan.Then again all these things are provided as input to the organization and then there is thiscustomer advocacy. The government is there to maintain the harmony in the system by wayof regulations and then industry they lobby with the government for various kinds ofregulations.
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So, we see inputs of material, labor and capital. We see a technological process created fortransforming raw material into finished goods. The finished products in turn are sold to acustomer. Financial institutions, the labor force, suppliers and customers are all part of theenvironment as is government. If you stop to think about it for a moment, it is difficult toconceive of all systems as being fully closed.All system must have some interaction with their environments if they are to survive.(Refer Slide Time: 09:08)
Probably the most relevant way in which to look at the closed open dichotomy is to considerit as a range rather than as to clearly separate classifications. An open system for instance,may become more closed if contact with the environment is reduced to overtime. The reversewould also be true.(Refer Slide Time: 09:23)
General Motors from its inception through the early 1960s, operated as if it were basically aclosed system. Management decided on the products it wanted to sell, produce throughproduct and offered them to the customers. GM assumed that whatever is made would selland for decades it was right. Government was generally benign and consumer advocategroups were nonexistent or had little influence.
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GM virtually ignored its environment for the most part, because its executive saw theenvironment as having almost no impact on the company’s performance. While some criticsof General Motors still attack the firm for being too insulated from its environment, GM hascertainly became more open.The action of consumer groups, stockholders, government regulators and foreign competitionhave forced General Motors to interact with and be more responsive to its environment. So,while it may not be the model for an open system, GM is more open today than it was in itsearlier years when it started.
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All systems have input, transformation processes and output. They take things such as rawmaterial, energy, information and human resources and convert them into goods and services,profits, waste material and the like. Open system; however, have some additionalcharacteristics that have relevance to those of us studying organization.(Refer Slide Time: 11:14)
The first characteristic of an open system is the environment awareness. One of the mostobvious characteristic of an open system is its recognition of the interdependencies betweenthe system and its environment. There is a boundary that separates it from the environment.
Changes in the environment affect one or more attributes of the system and converselychanges in the system affects its environment.(Refer Slide Time: 11:28)
Without a boundary there is no system and the boundary or boundaries determine wheresystems or subsystems start and stop. Boundaries can be physical like the clear lines thatseparate our houses from its neighbors. They also can be maintained physiologically throughsymbols such as titles, uniforms and indoctrination rituals.(Refer Slide Time: 12:03)
At this point, it is sufficient to acknowledge that the concept of boundaries is required for anunderstanding of systems and that their demarcation for the study of organization isproblematic. The system and its environment are interdependent. While few organizationshave drastic impact on their environment, the fact remains that all open systems affect theirenvironment to some degree.(Refer Slide Time: 12:17)
The 2nd characteristic is feedback. Open systems continuously receive information from theirenvironment. They help the system to adjust and allow it to take corrective actions to rectifydeviations from its prescribed course. We call this receipt of environment information asfeedback, that is, a process that allows a portion of the output to be returned to the system asinput such as information or money so as to modify succeeding outputs from the system.
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The 3rd is their cyclical character. Open systems are cycle of events. The system’s outputfurnish the means for new inputs that allow for the repetition of the cycle. The revenuereceived by the customers of the industrial firm must be adequate enough to pay creditors andthe wages of employees and to repay loans if the cycle is to be perpetuated and the survival ofthe organization maintained.(Refer Slide Time: 13:18)
Negative entropy: the term entropy refers to the propensity of the system to run down ordisintegrate. The closed system, because it does not import energy or new inputs from its
environment will run down over time. In contrast, an open system is categorized by negativeentropy - it replaces itself, maintains its structure, avoid death and even grow because it hasthe ability to import more energy than it puts out.(Refer Slide Time: 13:52)
The 5th characteristic is a steady state. The input of energy to arrest entropy maintains someconstancy in energy exchanging resulting in a relatively steady state. Even though there is aconstant flow of new input into the system and a steady outflow on balance the character ofthe system remains the same. Your body will replace most of its dying cells in any givenyear, but your physical appearance alters very little.So, while an open system is active in processing inputs to outputs, the system tends tomaintain itself over time.
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The 6th characteristic is the movement towards growth and expansion. The steady statecharacteristic is descriptive of a simple or primitive open system. As the system becomesmore complex and moves to counteract entropy, open systems move towards growth andexpansion. This is not a contradiction of the steady-state thesis. To ensure their survival, largeand complex systems operate in a way to acquire some margin of safety beyond theimmediate level of existence.(Refer Slide Time: 14:59)
The many subsystems within the system to avoid entropy tend to import more energy than isrequired for its output. The result is that the steady state is applicable to simple systems, butat the same complex level becomes one of preserving the character of the system throughgrowth and expansion.We see this in our bodies that they attempt to store fat. We see it too among largecorporations and government bureaucracies that not satisfied with the status quo, attempt toincrease their chances of survival by actively seeking growth and expansion.(Refer Slide Time: 15:36)
The final point of this characteristic needs to be made: the basic system does not changedirectly as a result of expansion. The most common growth pattern is one in which there ismerely a multiplication of the same type of cycles or subsystems. The quantity of the systemchanges while the quality remains the same. Most colleges and universities for instanceexpand by doing more of the same thing rather than by pursuing new or innovative activities.
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The 7th is the balance of maintenance and adaptive activities. Open system seeks to reconciletwo often conflicting activities. Maintenance activities ensure that the various subsystems arein a balance and that the total system is in accord with its environment. This, in effect,prevents rapid changes that may unbalance the system. In contrast, adaptive activities arenecessary so, that the system can adjust over time to variation in internal and externaldemands.(Refer Slide Time: 16:43)
So, whereas, one seeks stability and preservation of the status quo through: the purchase,maintenance and overhaul of machinery, the recruitment and training of employees andmechanisms such as the provision and enforcement of rules and procedures. The otherfocuses on change through: planning, market research, new-product development and thelike.(Refer Slide Time: 17:05)
Both maintenance and adaptive activities are required in if a system is to survive. Stable andwell-maintained organizations that do not adapt as condition changes will not endure long.Similarly, the adaptive but unstable organizations will be inefficient and unlikely to survivefor long.
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The 8th characteristic of open system is equifinality. The concept of equifinality argues that asystem can reach the same final state from different initial conditions and by a variety ofpaths. This means that an organization system can accomplish its objectives with variedinputs and transformational processes.As we discuss the managerial implications of organization theory, it will be valuable for youto keep the idea of equifinality in mind. It will encourage you to consider a variety ofsolutions to a given problem rather than to seek some rigid optimal solution.(Refer Slide Time: 18:07)
The system point of view is a useful framework for students of management to conceptualizeorganizations. For managers and future managers, the system perspective permits seeing theorganization as a whole with interdependent parts - a system composed of subsystems. Itprevents or at least deters, lower level managers from viewing their jobs as managing static,isolated elements of the organization. It encourages all managers to identify and understandthe environment in which their system operates.(Refer Slide Time: 18:44)
It helps managers to see the organization as stable pattern and actions within boundaries andto gain insight into why organizations are resistant to change. Finally, it directs managers’attention to alternative inputs and processes for reaching their goals. However, the systemperspective should not be viewed as a panacea.
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Now, limitations of the system perspective are the system’s framework has its limitation, themost telling being its abstractness. It is one thing to argue that everything depends oneverything else. It is much different thing to offer suggestions to managers on what preciselywill change and to what degree if a certain action is taken. Its value therefore, lies more in theconceptual framework than in its direct applicability to solving managers’ organizationalproblems.(Refer Slide Time: 19:39)
Now, let us look at the lifecycle perspective. So, as noted earlier organizations are born, growand eventually die though it may take hundred years or more. New organizations are formeddaily. At the same time every day hundreds of organizations close their doors, never to openagain. We especially see this birth and death phenomena among small businesses. They popup and disappear in every community.(Refer Slide Time: 20:24)
Now, we will build on the biological metaphor of organization proceedings through lifecyclestages. Like human beings we will argue all organizations are born, live and die. Also like allhuman beings, some develop faster than others and some do a far better job of aging thanothers, but the metaphor remains an interesting way to conceptualize the life of anorganization.
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Now, let us define the life cycle. The life cycle refers to the pattern of predictable change. Wepropose that organizations that have life cycles whereby they evolve through a standardizedsequence of transition as they develop over time. By applying the life cycle metaphor toorganizations, we are saying that first, there are distinct stages through which organizationsproceed. Second, the stages follow a consistent pattern and the third, the transition from onestage to another are predictable rather than random occurrences.(Refer Slide Time: 21:12)
Now, what are the stages? The lifecycle concept has received a great deal of attention in themarketing literature also. The lifecycle is used to show how product moves through fourstages that is birth or formation, growth, maturity and decline. The implication formanagement is that the continual introduction of new products is required if the organizationis to survive over the long run.(Refer Slide Time: 21:28)
We could use the same four stages in describing organizations, but organizations are notproduct. Organizations have some unique characteristics which require some modification inour description. So, research on the organization lifecycle leads up to five-stages model. The1st is entrepreneurial stage. This stage is synonymous is synonymous with the formationstage in the product lifecycle. The organization is in its infancy.
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The 2nd is the collectivity stage. This stage continues the innovation of the earlier stage, butnow the organization’s mission is clarified. Communication and structure within theorganization remains essentially informal. Members put in long hours and demonstrate highcommitment to the organization.(Refer Slide Time: 22:15)
The 3rd is formation and control stage. The structure of the organization stabilizes in the thirdstage. Formal rules and procedures are imposed. Innovation is deemphasized, while
efficiency and stability are emphasized. Decision makers are now more entrenched, withthose in senior authority positions in the organization holding power.(Refer Slide Time: 22:56)
Decision making also takes on a more conservative posture. At this stage, the organizationexists beyond the presence of any one individual. Roles have been clarified so that thedeparture of members causes no severe threat to the organization.(Refer Slide Time: 22:58)
The 4th is elaboration of structure stage. In this stage, the organization diversifies its productor service markets. Management searches for new products and growth opportunities. The
organization structure becomes more complex and elaborate and the decision making isdecentralized.(Refer Slide Time: 23:20)
The 5th is the declining stage. So, as the result of competition, a shrinking market or similarforces, the organization in the declining stage finds the demand for this products or servicesshrinking. Management looks for ways to hold markets and look for new opportunities.Employee turnover especially among those with the most saleable skills, increases.(Refer Slide Time: 23:48)
So, conflicts increase within the organization. New people assume leadership in an attempt toarrest the decline and decision making is centralized in the new leadership.(Refer Slide Time: 24:01)
Now, this is the lifecycle perspective. So, you see that now we are moving from formation togrowth to maturity and to decline. So, this is the visual representation of organizationlifecycle. So, what happens in the 1st stage, that is the entrepreneurial stage; so, there areambiguous goals and high level of creativity is required. In the 2nd stage, that is collectivitystage, informal communication and structure is there and high commitment is required.In the 3rd stage, that is the maturity. So, there are these two things: formalization and controlstage and the elaboration of a structure stage. So, two things happen here. So, formalizationof rules happens, stable structures come into play and emphasis is on efficiency. Then thestructure becomes more complex, decentralization happens and the markets are diversified.So, in the formation that is entrepreneurial stage, this is the growth stage; in maturity twothings happen and then the declined stage. So, there is in decline high employee turnover,increased conflict and then they move to the decision making to the centralized one.
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Now, what is the importance of this lifecycle perspective for us? Viewing organization in alifecycle perspective offsets the tendency to look at organizations as static states. So, we arenot to look at organizations as static entities, but as dynamic entities. Organizations are notsnapshots; they are motion pictures. They evolve and they change. So, using the lifecycleperspective makes us aware when we assess or describe an organization that it has notalways been the way it is nor will it always be the same in the future.(Refer Slide Time: 26:12)
Additionally, this life-cycle metaphor is valuable when we consider what management can doto make an organization more effective. The actions that are appropriate for a given problemwhen the organization is growing may be very different if the problem occurs in the declinestage.(Refer Slide Time: 26:33)
So, to conclude, in this model we have discussed systems perspective in detail. Then we havelearned about the life cycle perspective, thereafter we have discussed how systems and lifecycles are part of a larger biological metaphor. And, we have also learned about theimportance of both these perspectives.
(Refer Slide Time: 26:51)
And, again these are the four books from which the material for this module was taken.Thank you.
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