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Article Published: Al Zajel Magazine, Issue 51, March 2011

Open System Organizations

In my February article I have mentioned clearly that there are three types of organizations: The open, the rational and the natural system. In this issue we will dig deep into the components of the Open System of Organizations and discuss the causes, effects, consequences and implications of such a system on organizations.

By definition, the Open Systems are capable of self-maintenance on the basis of through-put of resources from the environment. It is very difficult to determine the boundaries of these types of organizations because they are always vulnerable to the uncertainty of the outside environment. What makes this system unique is that this system is limited to what is known as the law of limited variety: A system that will exhibit the no more variety than what

the environment exhibits. Daniel Katz and Robert L. Kahn have applied open systems theory to the study of social organizations. They list nine characteristics of such a system: (a) the importation of energy; (b) the throughput; (c) the output; (d) the system as a cycle of events; (e) negative entropy; (f) information input and the coding process; (g) homeostasis; (h) differentiation; and (i) equifinality. There are five subsystems or components.'To simplify the above characteristics by Katz and Kahn I will discuss the importance of the adaptive and productive component of the Open System.

Adaptive Component
The adaptive component of Open System Organizations adapts to the environmental changes to maintain internal level of employee and organizational performance.

Productive Component
The main characteristic of the productive component is only realized through production that the acute manager can visualize progress.Two types of information are important to the production component: (a) information about the needs of the target population; and (b) information about environmental resources to answer those needs.

Let us take the example of Jim McNerney, BOEING CEO, during the 1980’s when a wave of bond fuel acquisition affected negatively the relationship between stakeholders and employees. McNerney realized that basing executives’ pay to the stock market will definitely lead into a better employee performance. But the problem was that what if the stock market flung for BOEING then the executives will not be even getting their salaries. Therefore, instead of building performance on uncertainty and uncontrollable open factors McNerney based pay on factors that executives can control, weighted both profit and process and finally made shareholders value a by-product.

The productive component is valid through the external information that has been transferring from outside the organization towards BOEING and through the system BOEING has. In the sense that the interconnectedness between the open market and the internal system of BOEING could have been devastating to most executives. The information can change at any minute from the stock market and thus it can be the reason behind high level of job loss. On the other hand, McNerney transferred the adaptive stage into a proactive level where he was alerted by the external system and realized that his strategy should be changed for the sake of better employee performance and loyalty.

In the April Issue we will discuss how BOEING started to realized the importance of the natural system and what McNerney used to replace an open system environment with  a more stable and controlled one.

Cohan, S.P. (2008). You can’t order change: Lessons from Jim McNerney’s turnaround at BOEING. PORTFOLIO: London.

Hickson III, M. (1973). The Open Systems Model: Auditing the Effectiveness of Organizational Communication. Journal of Business Communication, 10(3), 7-14.

Scott, W. R., & Davis, G. F. (2007). Organizations and organizing: Rational, natural, and open systems perspectives. Upper Saddle River, NJ: Prentice Hall.

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