Organisation systems

Prof.ssa Lucia Marchegiani Roma | 2013

ADVANCED ORGANIZATION DESIGN

Prof.ssa Lucia Marchegiani


AOD - Who

• Lucia Marchegiani –  [email protected]

• TA – Francesca Marzo –  [email protected]

AOD - Where

AOD - Who

• Lucia Marchegiani –  [email protected]

• TA – Francesca Marzo –  [email protected]

AOD - Where

The Sciences of the Artificial

Herbert Simon Assignments and readings (available on the course website)

Classics of Organization Theories

AOD - How

•  Interaction • Theoretical background • Business cases • Active involvement

– Assignments –  In class participations – Additional exhibits for discussion


AOD - What

AOD - What

AOD – What

Detailed syllabus

Course website

Keynote speakers

Organizational Domain

• Contents and Methods • The Enterprise as a System

– General systems theory – The Business Organization System

• The elements of the BOS • The Organizational Domain


General systems theory 1/2

• health care system, a family system, body systems, information systems, banking systems, political systems, etc….

• Ludwig von Bertalanffy, 1936 – need for a theory to guide research in several disciplines because he saw striking parallels among them

–  to identify laws & principles which would apply to many systems


General systems theory 1/2

•  The general systems theory made it possible to study, understand and beYer describe the highly complex organizational systems. The systemic approach is a method of investigation of organized complexity, related to the contributions from different disciplines, such as biology, information theory, cybernetics.

•  In contrast to the analytical approach, which studies the phenomena by breaking them down into basic types in order to arrive at general results on the aggregate of its parts, according to the systematic approach to study the phenomenon is analyzed in its complexity by focusing on the interrelationships between the parties rather that the behavior of the individual components


What is a system?

What examples of systems can you think of? What is the function of a system?


Definitions and functions 1/2

• Rapaport defines a system as an "ʺentity which can maintain some organization in the face of change from within or without."ʺ

• Ryan defines a system as "ʺa set of objects or elements in interaction to achieve a specific goal."ʺ

•  The function of any system is to convert or process energy, information, or materials into a product or outcome for use within the system, or outside of the system (the environment) or both. Indeed, if a system is to survive, it must save some of the outcome or product to maintain the system.


Definitions and functions 2/2

• A system is a set or combination of parts, whose mutual relationships are such as to make them interdependent, organized for the aYainment of a goal. The process of interaction between the parties is defined as "ʺorganization.” –  These parts may have a simple or complex structure, they can be stable or highly variable.

–  Similarly, the nature of the relationship between the parts changes. The interdependence between the parts is gradual.


Structure and Processes

•  The structure is characterized by: the limit (border from the external environment); the elements or components; the containers of the elements; the communication network. –  In complex systems the individual parts of the system can in turn be systems that play a role in the pursuit of the objective of the system to which they belong (organization of the system levels). The structure of a system in a given time represents the status of the system.

•  The processes, which are expressed in flows of energy and information circulating between the containers, give rise to the sequence of events that generate results. Prof.ssa Lucia Marchegiani Roma | 2014

Systems and the environment

•  A system is a set of elements (parts of and participants) that interact with each other to acquire input from the environment, process them, and return output to the external environment.

•  "ʺClosed system” –  is not dependent on the environment in which it is; it is self-‐‑defined and isolated, but it is unlikely to exist.

•  "ʺOpen System"ʺ –  interacts with the environment to survive and adapts to it

à A system is open when exchanges with the environment and energy issues.


System complexity

•  The variety of the system elements •  the variety, intensity and variability of the interrelationships between the elements

•  the intensity and variability of interactions with the environment

•  Emergent features, ie those not owned by the individual components.

à The complexity of the system grows faster than the number of the elements that compose it.


Classification

•  The systems can be classified according to the level of complexity:

– Mechanical Systems: the interdependence between the parties is such that the behavior is strictly regulated and limited; the structure is rigid and the system of relations is crucial.

–  Organic systems: the relationship between the parties is less rigid, allowing for greater flexibility of response.

–  Social systems: the relationship between the interacting parts become relatively "ʺloose"ʺ; Contrary to the physical or mechanical systems are very cohesive

COMPL

EXITY


Boulding’s classification 1/3

• Physical systems: 1.  Schemes: systems made of static structures

(atoms in a crystal) 2.  Mechanisms: simple dynamical systems

(clock or solar system) 3.  Cybernetic Systems: self-‐‑regulating in

accordance with methods prescribed or objective outside (thermostat). Through a feedback mechanism (feedback loops) are maintained in dynamic equilibrium with the environment.

The systems vary both in relation to the complexity of the components and the nature of the relationship between the parties.



•  Biological systems: 4.  Open systems capable of self-‐‑maintenance

based on the use of environmental resources (cell)

5.  Systems with planned growth: playing not to duplicate but to produce seeds that contain instructions pre-‐‑established system (egg-‐‑hen)

6.  Systems with internal image: capable of detailed knowledge of the environment; the received information is organized in a picture or cognitive structure of the environment as a whole (animals)



• Social systems: 7.  Systems handling symbols possess

consciousness and use a language (men) 8.  Social systems: systems multi-‐‑headed

composed of subjects at level 7) with a social order and a common culture (social organizations)

9.  Transcendental systems: systems composed of "ʺabsolute and unknowable"ʺ inevitable (systems not connected to the lower levels still not known)


Cybernetic systems 1/3

•  A self-‐‑regulating system able to remain in dynamic equilibrium with its environment through the mechanism of feedback is called cybernetic.

•  The ability of self-‐‑regulation is obtained through the development of specialized parts or subsystems, connected by certain processes or streams.

•  The mechanism that gives effect to the monitoring process, which makes the system capable of self-‐‑regulation, are the instructions, programs. These, included as part of the system, transform the organizational model into a control model.

•  The organization as a cybernetic system emphasizes the importance of operations, controls and decision-‐‑making centers and analyzes the flows between them.



•  The center of decision defines the objectives of the system in relation to questions coming from the environment

•  The control center monitors the conduct of operations while maintaining the products in line with the objectives of the decision-‐‑making center.

•  There are two feedback mechanisms –  the first one comes to the control center from the operational level and allows comparing information on products with the objectives set;

–  the other one comes from the outside (eg customers) prompting the organization to review its objectives



•  The cybernetic model pays great aYention to the operational level of the organization, the level at which production processes are carried out of the system, and related technical streams (input, processing, output). The decision-‐‑making and control are considered primarily in terms of their effects on these flows.

•  Examples: –  subsystem of the staff in the company system –  A firm in the market

•  The cybernetic systems are very cohesive, and are constituted by sets of parts in which each one is very responsive to changes in the other.


Living systems (biological and social)

•  Living systems are open systems capable of self-‐‑adaptation and self-‐‑organization.

•  They exchange energy and information with the environment, to produce work and stay alive. Through processes of positive and negative feedback, they adapt to changing environmental conditions.

•  They tend to remain in a state of organization and order, through feedbacks –  The feedback is positive when the stimulus change (growth and evolution of the system)

–  The feedback is negative when it tends to maintain the stability and equilibrium of the system (self-‐‑preservation)


Living systems (biological and social): Entropy

•  In the general theory of systems the difference between open and closed systems can be explained by the concept of entropy, conceived as the loss of energy, or energy that cannot be converted into work.

• While closed systems go towards a state of entropy, the open systems, which are able to take energy from the environment, shall be entitled to negative entropy or negentropy.

Entropy is a state of maximum disorder and randomness. Therefore it can be considered as the opposite state to

organization. Prof.ssa Lucia Marchegiani Roma | 2014

Living systems (biological and social): Interaction and Borders

• Open systems are capable of self-‐‑renew on the basis of resource exchange with the environment. The interaction with the environment is in fact essential for the functioning of this system

•  Because of their opening is difficult to determine the boundaries of open systems. –  The openness or closure of a system depends on how the universe is included in the system and how much it is considered as an environment.

–  The higher the portion of environment in which exchanges take place added to the system, the more closed the system becomes.


Living systems (biological and social): Environment

• Open systems evolve towards a higher order and higher complexity –  in the process of adaptation to the external environment they become more differentiated in shape and more complex in structure.


Social systems 1/3

• Group of positions or roles, occupied or held by individual and corporate entities which interact through behaviors, actions, activities of a specific nature, as part of norms [...] that limit the variety of acts allowed to each party towards the others. The plot of the relationship and the stable interactions [...] arising out of such rules, forms the structure of the system (Gallino, Dizionario di sociologia, UTET, 1978)


Social systems 2/3

•  The social systems, such as corporate organizational structures, unlike the physical and biological systems, do not have a perfect regularity of relationship between the parties. In them, the structural aspect is closely related to the management.

• While in biological and physical systems parts of the structure are related through physical-‐‑chemical relations, social systems are characterized by a strong influence of the "ʺpsychological"ʺ bond, which influence the parties and even the survival of the system.


Social systems 3/3

•  The feedback mechanisms in social systems are complex: the circuits connecting the process of information, decision-‐‑making and action.

•  Such systems tend rather to anticipate regulatory processes, providing for situations that might arise in the future and therefore affect the functioning of the system. This will ensure that the conditions of organization and management in anticipation of the occurrence of environmental stress (feed-‐‑forward).


Vulnerability of the social systems 1/2

•  The vulnerability is the state that can make the structure of the system permanently or temporarily damaged.

•  The damage (D) to the system caused by a stress of a given intensity (i) is directly proportional to the vulnerability (V) of the system. D = i V

•  the vulnerability can be reduced through preventive measures P D = i V / P


Vulnerability of the social systems 2/2

•  The vulnerability is an internal feature of the system and it depends on the degree of determination of its structure.

•  This vulnerability is minimized by a degree of intermediate structural determination (elasticity of the system). –  This allows to absorb external stress and absorb them without jeopardizing the survival of the system.

– At odds, a system is highly vulnerable either when the degree of structural determination is too low (lability of the system) or too high (rigidity of the system).


Summing up principles

•  The system'ʹs overall behavior depends on its entire structure (not the sum of its various parts). –  The structure determines the various behaviors, which

determine the various events. Too often, we only see and respond to the events.

–  Too often in organizations (and in management training programs), we think we can break up the system and only have to deal with its parts or with various topics apart from other topics. Systems theory reminds us that if you break up an elephant, you don'ʹt have a bunch of liYle elephants.

•  There is an optimum size for a system. –  If we try to make the system any larger, it'ʹll try to break itself up

in order to achieve more stability. Too often in our organizations, we continually strive to keep on growing -‐‑-‐‑ until the reality of the system intervenes. At this point, we again only see the events, not the behaviors or the structures that cause them. So we embark on short-‐‑sighted strategies to fix events, often only causing more problems for ourselves and others.

Source: Carter McNamara, Peter Senge Prof.ssa Lucia Marchegiani Roma | 2014

Summing up principles

•  Systems tend to seek balance with their environments •  Systems that do not interact with their environment tend to reach limits (e.g., get feedback from customers)

•  A circular relationship exists between the overall system and its parts. –  Ever notice how an organization seems to experience the same kinds of problems over and over again? The problems seem to cycle through the organization. Over time, members of the organization come to recognize the paYern of events in the cycle, rather than the cycle itself.

Source: Carter McNamara, Peter Senge

Contents

• The Enterprise as a System – General systems theory – The Business Organization System



Business Organization Systems

•  One of the unique characteristics of the company'ʹs organizational system is its high complexity. –  The simplest model to interpret this complexity is hierarchical.

•  The hierarchy, understood as a conglomeration of different levels, is a characteristic of complex systems. It represents a way to contain the complexity.

•  The systems are in fact composed of multiple subsystems and parts. –  Example: organization of a company (roles, work groups departments, divisions ... etc.)

•  Connections and interdependencies within a single systemic component are narrower and stronger than those between the different components of the system.


Complexity

• Simple systems require less transmission of information than other systems: each component requires detailed information only on the parts that belong to the same supra-‐‑system and summed up information on other global supra-‐‑systems.

• The higher the size of the system, the higher its complexity. – The hierarchical structure helps to mitigate the influence of size on the complexity of the system.


Sub-systems: vertical perspective

•  Analyzing the company'ʹs organizational system in a structural perspective (vertical) there are some core functions that must be implemented: –  The acquisition of materials (Procurement or Purchasing)

–  The transformation of inputs into outputs (Production)

–  Transfer of the products on the market (Commercial) –  The control function (Management Control) –  The maintenance function (Personnel and Organization)

–  The adaptive function (Planning and Development or R&D)

–  The managerial and coordination function Prof.ssa Lucia Marchegiani Roma | 2014

Sub-systems: horizontal perspective

•  Analyzing the company'ʹs organization in a managerial and operational perspective (horizontal) subsystems perform the following functions:

–  Informative: all the information flows that feed the decision-‐‑making processes

–  Decision-‐‑making: all the decision-‐‑making processes –  Operational: all operations that implement the decisions

The structural and operational perspectives do not cover all the analysis of the company'ʹs organization.


ACTIVITIES SYSTEM

INFORMATION

INFORMATION

INFORMATIONE

DECISION

DECISION

DECISION

OPERATION

OPERATION

OPERATION

INFORMATION SUB-SYSTEM

DECISION SUB-SYSTEM

OPERATION

SUB-SYSTEM


Galbraith star model

Designing Organizations by J. Galbraith, Jossey-‐‑Bass Publishers, San Francisco, 1995.

Five star model described

From strategy to structure

•  The five factors must be internally consistent to enable effective behaviour.

•  A design sequence exists whose starting point is the strategy definition. –  Strategy drives organisational structure. –  Processes are based on the organisation'ʹs Structure. –  Structure and Processes define the implementation of reward systems

and people policies.

The preferred design process is composed in the following order: a -‐‑ strategy; b -‐‑ structure; c -‐‑ key processes; d -‐‑ key people; e -‐‑ roles and responsibilities; f -‐‑ information systems; g -‐‑ performance measures and rewards; h -‐‑ training and development; i -‐‑ career paths.

Business Organization System

• Motivation • Values • Skills

• Policies • Procedures • Information Systems

• Rigidity • Flexibility • Usage

• Internationalization • Growth • Diversification

PEOPLE

STRUCTURE

ROLES

TECHNOLOGY

OPERATIONS

STRATEGY

• Centralization • De-centralization • Integration • Differentiation

• Definition • Subjectivity • Norms


Strategy à Organization System

hYp://www.psclipper.com/OrganizationasaSystem.asp

Organizational analysis of the business system

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Organizational analysis of the business system

STRUCTURE

PEOPLE

OPERATIONS

TECHNOLOGY

PROCUREMENT SUB-SYSTEM

PRODUCTION SUB-SYSTEM

CONTROL SUB-SYSTEM

SALES SUB-SYSTEM

MANAGEMENT SUB-SYSTEM

HUMAN SUB-SYSTEM

INFORMATIVE SUB-SYSISTEM

DECISIONS SUB-SYSTEM

TECHNOLOGY SUB-SYSTEM

OPERATIONS SUB-SYSTEM


External environment: stakeholders

Shareholders

• Financial returns

EMPLOYEES

•  Satisfaction •  Salary •  Directions

STATE

•  Law compliance

•  Fair competition

SUPPLIERS

•  fair transactions

•  Revenues

COMMUNITY

•  Social responsibility •  Value

MANAGEMENT

•  Efficiency •  Efficacy

CUSTOMERS

§  Quality

§  Value

CREDITORS

•  Fiscal responsibility •  Trust

BUSINESS ORGANIZATION


Peter Senge’s System Thinking

Contents

• The Enterprise as a System – General systems theory – The Business Organization System



Porter’s generic value chain

•  The value that'ʹs created and captured by a company is the profit margin:

Value Created and Captured – Cost of Creating that Value = Margin •  A value chain is a set of activities that an organization carries out to

create value for its customers. Porter proposed a general-‐‑purpose value chain that companies can use to examine all of their activities, and see how they'ʹre connected. The way in which value chain activities are performed determines costs and affects profits, so this tool can help understand the sources of value for an organization.

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Rather than looking at departments or accounting cost types, Porter'ʹs Value Chain focuses on systems, and how inputs are changed into the outputs purchased by consumers.


Elements of Porter’s value chain: primary activities

•  Primary activities relate directly to the physical creation, sale, maintenance and support of a product or service. They consist of the following: –  Inbound logistics – These are all the processes related to

receiving, storing, and distributing inputs internally. Your supplier relationships are a key factor in creating value here.

–  Operations – These are the transformation activities that change inputs into outputs that are sold to customers. Here, your operational systems create value.

–  Outbound logistics – These activities deliver your product or service to your customer. These are things like collection, storage, and distribution systems, and they may be internal or external to your organization.

–  Marketing and sales – These are the processes you use to persuade clients to purchase from you instead of your competitors. The benefits you offer, and how well you communicate them, are sources of value here.

–  Service – These are the activities related to maintaining the value of your product or service to your customers, once it'ʹs been purchased.


Elements of Porter’s value chain: support activities

•  These activities support the primary functions above. For example, procurement supports operations with certain activities, but it also supports marketing and sales with other activities. –  Procurement (purchasing) – This is what the organization does

to get the resources it needs to operate. This includes finding vendors and negotiating best prices.

–  Human resource management – This is how well a company recruits, hires, trains, motivates, rewards, and retains its workers. People are a significant source of value, so businesses can create a clear advantage with good HR practices.

–  Technological development – These activities relate to managing and processing information, as well as protecting a company'ʹs knowledge base. Minimizing information technology costs, staying current with technological advances, and maintaining technical excellence are sources of value creation.

–  Infrastructure – These are a company'ʹs support systems, and the functions that allow it to maintain daily operations. Accounting, legal, administrative, and general management are examples of necessary infrastructure that businesses can use to their advantage.


The Organizational Domain