Systems Theory

This theory tries to look at how organizations function and operate as a system that is a subsystem of a much bigger system. It is the process by which an organization receives feedback. A system is an interrelated set of elements that function as a whole. It has four basic parts; it receives inputs, from the environment, it transforms the resources into outputs (finished goods and finally receives feedback from the environment).

The feedback from the environment serves as a source of information about the performance of the firm and hence it serves as a good basis for later decision making. (This notion of a system being only part of a greater system is very useful to management and stands out as the greatest contribution of the systems theory). The other useful concepts of the systems theory are the concepts of Synergy Entropy and Equifinality.

Synergy suggests that two people or units can achieve more working together than working individually. Entropy is what happens when firms adopt a closed-system approach - they fall and die. Equifinality is the idea that two or more strategies (paths) may lead to the same achievements (place).