OPEN AND CLOSED SYSTEMS

This handout is issued to help you understand the concept of organizations as open and closed
systems. After reading the handout students are required to comment on the feasibility of
having a purely open or purely closed system. Post your comments on the forum.

Ollaejoe.

A system is commonly defined as a group of interacting units or

elements that have a common purpose. The units or elements of a
system can be cogs, wires, people, computers, and so on. Systems are
generally classified as open systems and closed systems and they can
take the form of mechanical, biological, or social systems. Open
systems refer to systems that interact with other systems or the
outside environment, whereas closed systems refer to systems having
relatively little interaction with other systems or the outside
environment. For example, living organisms are considered open
systems because they take in substances from their environment such
as food and air and return other substances to their environment.
Humans, for example, inhale oxygen out of the environment and
exhale carbon dioxide into the environment. Similarly, some
organizations consume raw materials in the production of products and
emit finished goods and pollution as a result. In contrast, a watch is an
example of a closed system in that it is a relatively self-contained, self-
maintaining unit that has little interacts or exchange with its
environment.
All systems have boundaries, a fact that is immediately apparent in
mechanical systems such as the watch, but much less apparent in
social systems such as organizations. The boundaries of open systems,
because they interact with other systems or environments, are more
flexible than those of closed systems, which are rigid and largely
impenetrable. A closed-system perspective views organizations as
relatively independent of environmental influences. The closed-system
approach conceives of the organization as a system of management,
technology, personnel, equipment, and materials, but tends to exclude
competitors, suppliers, distributors, and governmental regulators. This
approach allows managers and organizational theorists to analyze
problems by examining the internal structure of a business with little
consideration of the external environment. The closed-system
perspective basically views an organization much as a thermostat;
limited environmental input outside of changes in temperature is
required for effective operation. Once set, thermostats require little
maintenance in their ongoing, self-reinforcing function. While the
closed-system perspective was dominant through the 1960s,
organization scholarship and research subsequently emphasized the
role of the environment. Up through the 1960s, it was not that
managers ignored the outside environment such as other
organizations, markets, government regulations and the like, but that
their strategies and other decision-making processes gave relatively
little consideration to the impact these external forces might have on
the internal operations of the organization.
Open-systems theory originated in the natural sciences and
subsequently spread to fields as diverse as computer science, ecology,
engineering, management, and psychotherapy. In contrast to closed-
systems, the open-system perspective views an organization as an
entity that takes inputs from the environment, transforms them, and
releases them as outputs in tandem with reciprocal effects on the
organization itself along with the environment in which the
organization operates. That is, the organization becomes part and
parcel of the environment in which it is situated. Returning for a
moment to the example of biological systems as open-systems, billions
of individual cells in the human body, themselves composed of
thousands of individual parts and processes, are essential for the
viability of the larger body in which they are a part. In turn, "macro-
level" processes such as eating and breathing make the survival of
individual cells contingent on these larger processes. In much the
same way, open-systems of organizations accept that organizations
are contingent on their environments and these environments are also
contingent on organizations.
As an open-systems approach spread among organizational theorists,
managers began incorporating these views into practice. Two early
pioneers in this effort, Daniel Katz and Robert Kahn, began viewing
organizations as open social systems with specialized and
interdependent subsystems and processes of communication,
feedback, and management linking the subsystems. Katz and Kahn
argued that the closed-system approach fails to take into account how
organizations are reciprocally dependent on external environments. For
example, environmental forces such as customers and competitors
exert considerable influence on corporations, highlighting the essential
relationship between an organization and its environment as well as
the importance of maintaining external inputs to achieve a stable
organization.
Furthermore, the open-system approach serves as a model of business
activity; that is, business as a process of transforming inputs to outputs
while realizing that inputs are taken from the external environment and
outputs are placed into this same environment. Companies use inputs
such as labor, funds, equipment, and materials to produce goods or to
provide services and they design their subsystems to attain these
goals. These subsystems are thus analogous to cells in the body, the
organization itself is analogous to the body, and external market and
regulatory conditions are analogous to environmental factors such as
the quality of housing, drinking water, air and availability of
nourishment.
The production subsystem, for example, focuses on converting inputs
into marketable outputs and often constitutes a primary purpose of a
company. The boundary subsystem's goal is to obtain inputs or
resources, such as employees, materials, equipment, and so forth,
from the environment outside of the company, which are necessary for
the production subsystem. This subsystem also is responsible for
providing an organization with information about the environment. This
adaptive subsystem collects and processes information about a
company's operations with the goal of aiding the company's adaptation
to external conditions in its environment. Another subsystem,
management, supervises and coordinates the other subsystems to
ensure that each subsystem functions efficiently. The management
subsystem must resolve conflicts, solve problems, allocate resources,
and so on.
To simplify the process of evaluating environmental influences, some
organizational theorists use the term "task environment" to refer to
aspects of the environment that are immediately relevant to
management decisions related to goal setting and goal realization. The
task environment includes customers, suppliers, competitors,
employees, and regulatory bodies. Furthermore, in contrast to closed-
systems, the open-system perspective does not assume that the
environment is static. Instead, change is the rule rather than the
exception. Consequently, investigation of environmental stability and
propensity to change is a key task of a company, making the activities
of an organization contingent on various environmental forces. As an
open system, an organization maintains its stability through feedback,
which refers to information about outputs that a system obtains as an
input from its task environment. The feedback can be positive or
negative and can lead to changes in the way an organization
transforms inputs to outputs. Here, the organization acts as a
thermostat, identified previously as an example of a relatively closed-
system. The difference between closed-systems and open-systems,
then, is in the complexity of environmental interactions. Closed-
systems assume relatively little complexity; a thermostat is a simple
device dependent mainly on temperature fluctuations. Conversely,
open-system such as the human body and modern organizations are
more intricately dependent on their environments. The point is that
closed-systems versus open-systems do not represent a dichotomy,
but rather a continuum along which organizations are more open or
less open to their environments. The key defining variable governing
this degree of openness is the complexity of the environment in which
the organization is situated.
Managers must take into consideration their organization's position
along the open-closed continuum. The Linux computer operating
system, for instance, is "open-source" and Red Hat, Inc., the
corporation selling the bundled revisions-the multiple inputs from
geographically dispersed users-represents an organization that would
cease to exist if it were not for an open-systems perspective. Thus,
stable environments with low complexity are more consistent with a
relatively closed-system or mechanistic management style, while
rapidly-changing environments are more consistent with flexible,
decentralized, or "organic" management styles.