The System Theory:

During 1960, management researchers began to analyze organizations from a systems perspective, a concept taken from physical science. A system is a combination of two or more interrelated or interdependent parts in a whole unit. A system is an established arrangement of components that leads to the attainment of particular objectives according to plan. The two basic types of systems are closed system (which do not interact with their environment) and open system (which dynamically interact with their environment).

Business Organization are perceived as open adaptive system. Any organism can be considered as an energy system which has inputs, transformation process, and outputs. In general, the term system is applied to any activity or any collection of facts, ideas or principles which are so arranged as to present a united a whole. All operations of the system will be methodical, thorough and regular and above all as per plan to achieve set objectives. In business, many divisions and departments are organized on functional bases and all act as a coordinated whole to achieve the basic objectives of the firm. E.g. the inputs for a university would be students, teaching materials, books, money and so on. The transformation process would consist of lectures, seminars, assignments, research, study, discussion, counseling, etc. The output would be educated, cultured and disciplined individuals ready to enter the real world of business or employment.

The major features of the system are:

1. Every system is always focusing on a goal.
2. A particular system has some subsystems. Each subsystem interacts with each other.
3. System may be open or close.
4. There is always a unity of action in each and every subsystem to achieve an overall system goal.
5. System always has a boundary, which separates it from the environment.
6. System depends upon the flow of information in and outside its boundary.
7. The emphasis is given to effective feedback for system function control.

System View of Organization

Contribution and Limitation of System Theory:

Contributions:

1. It recognizes the interrelation and interactions among subsystems for the synergetic effect. In addition, it implies that decision s and actions take in one organizational area will affect others and vice versa.
2. It recognizes that organizations are not self –contained. They rely on their environment for essential inputs and as outlets to absorb their outputs.

Limitations:

1. There are practical problems in applying system theory in organizations. The problems occur to determine the system’s boundaries and identify interrelations of the various sub-systems.
2. How managers have to process things is not very clearly defined by system theory.