IMDR/DM1/Systems Theory Introduction to Systems thinking apb/dm1/04 This subject is taught in the second trimester as it forms part of the

core processes of Management. A manager who brings resources together to achieve results has to think of the situation as a whole with interconnected parts. This thinking is referred to as Systems thinking. When you start working, you first perform functions within a given setup, be it a department, group, section, division or a small organisation. As you master the functions, you get more responsibilities, such as wider area of operation, higher functions of planning or supervising others. This necessitates a shift in your viewpoint from focusing on the function to thinking of the conditions in which the function is carried out. As you gain competence and confidence, you get higher responsibilities of planning. That calls for a shift again: thinking long and medium term in addition to thinking of the immediate future. You also start dealing with resource requirements for the medium and the long term. You thus move into managing a subsystem of the organisation. As you show your capability, you would have to then understand the interconnections of your subsystem with other subsystems in the organisation. It is then that you begin to appreciate how managerial decisions are made. Your further rise depends upon how well you visualise and actualise the connection between the organisation and the several constituents of the environment. In order that you deal with the interconnectedness of different functions and subsystems you need to absorb a way of thinking about the system and its parts. Hence the subject is a part of the core processes in management.

IMDR/DM1/Systems Theory Content Structure How to explain Organisations and Organisational phenomena in terms of Systems
Procedure Procedure of Procedure of

of defining Systems
Principle of

identifying Environment

analysing changes of Integration and Coordination

Principles

Principles of

Recursion

Open Systems LAW OF REQUISITE VARIETY

Concepts of Algorithm
& Heuristics

Concept of Systems

Complexity

Systems Approach Description of Complex Phenomena at

the Individual, Organisational and National level

Evolution of Sys Th

* Concepts relevant for understanding Systems Thinking - Synergy, Organisation, Open Systems - Selling/Marketing Concept, Marketing Mix - Job/Role, Personality & Behaviour - PERT/CPM, Function, Probability - Scientific Method.

A system is not something presented to an observer, it is something recognised as such.

-Stafford Beer

Lecture Note Systems Approach

1. Examples of Real life Phenomena

IMDR/DM1/Systems Theory

*Music System and a Cassette Player *Bank and a Banking System MS consists of Cassette Player, Amplifier, Speakers(separate), Radio Tuner and CD Player. The System can deal with different media with different levels of volume and quality. Banking system consists of banks, Reserve Bank, Inter-Bank dealings, Banks Association, Government agencies, Customers and Borrowers. It is the Banking system which influences availability of funds in the economy. The usage of the term System takes into account something, which a single entity cannot achieve. The system encompasses several entities each of which has a distinct character. As such it encompasses an assemblage of diverse components, which work together to produce certain desired outcomes, which are not possible to produce individually.
2. Sys tems

Approach

This way of looking at the world assumes that nothing exists in isolation and everything exists in an interconnected way with other things. So if we have to understand and deal with things, then we need to understand the inside of things and the outside connections. All the phenomena associated with a single entity cannot be explained with reference to the properties of that entity alone. All problems do not arise within the bounds of that entity. Some do and others arise from the connections, which that entity has with other entities. This is what makes things complex. e g If the Music System does not give you good quality of sound, it could be due to faulty speakers, defective amplification, faulty cassette mechanism, cassette and or recording quality or combinations of any of these. Thus the Music system is more complex than the Cassette Player. Complexity is the name we give to a property of things when a single outcome is caused by a number of factors, which themselves are dynamic.When the connections among different parts of the system are not physical and hence not visible, we conceptualise the connections from their interactions. For this purpose, we first look at the totality and call it a system. To look at a single entity as a part of the larger picture and not in isolation is called the Systems Approach. Why does it become necessary to do so?
Look at the phenomenon of Road Widening. Consider the question of Redundancy in Industry.

IMDR/DM1/Systems Theory

Lecture Note: Evolution of Systems thinking 1. Real problems and Conceptual Development A. Real Problems A1 The experience of World War A2 The Great Depression A3 The conduct of Warfare in the Second WW B. Conceptual Development B1 Biology B2 Economics B3 Cybernetics 2. Real Problems A1 The experience of World War 1: From battles to war, from one force to a complex of forces
A2 The Great Depression

From demand for a product to aggregate demand, firms to industry, micro to macro.
A3 The conduct of warfare in WW II

From maximising force to optimising operations, birth of OR and strategy 3. Conceptual Development
B1 Biology

Reductionism, Living process - goal seeking, One cause: one effect, expansion of science into new interdisciplinary tools, selectivity of models.
B2 Economics

Limitations of the equilibrium of the firm, its input-output linkages, aggregate phenomena Economic systems
B3 Cybernetics

Feedback and Control, Computers, Automation: mechanism to servo-mechanism 4. The birth of General Systems Theory. Contribution of Bertalanffy, Boulding-Economist, Ashby-Mathematician , Beer-OR

IMDR/DM1/Systems Theory

Lecture Note: Concept of Systems Definition: A system is a set of interrelated parts which together process inputs of matter, energy and data to yield outputs of matter, energy and information. Examples: Hotel, Hospital, Computer, Mango Tree, Mango Pulp factory Non-Examples: A Cooperative Hsg Society whose members close themselves. An empty class room. Attributes: Interrelation of parts, Processing, inputs and outputs. 1. The interrelation of parts can be conceptualised or in physical systems the interrelation can be empirically established. When the parts interact, the output of one becomes the input for another and so on. There is also an exchange of information and matter. Information is received and material is delivered. Interactions, when repeated over time build up mutual expectations and the pattern becomes stabilised leading to relationships. The relationship signifies three segments: areas of independence, dependence and obligations. Independence ensures benefits of specialisation, dependence gives benefits of exchange and simultaneous action and obligations ensure certainty. Together the parts interact to create qualitatively enhanced output by supporting and compensating each other. Enhancement of quality is referred to also as emergent property, synergy etc. Thus the properties of system output are not reducible to the output of any part. 2. Processing refers to a network of many conversion activities carried out by parts of the system which is going on continuously and according to some logic. 3. Inputs are those data, energy and matter that get converted. Stable components are not regarded as inputs. Output is the end-product of the processing of input and could be any or all of information, energy and matter. Classification of systems: Conceptual and Empirical, Open and closed, Deterministic and Probabilistic, Mechanistic and Organic Further reading: Murdick, Ross &Clagget - Information Systems for Modern
Management, p15-16, third ed.

IMDR/DM1/Systems Theory Procedure for defining Business Organisations as systems 1. We use a simple model of the business organisation in the system framework

Management

Operations
Data Materials Information Flow Material flow Information Goods

Resources

This model shows three subsystems: Management, Operations and Resources.Operations are further broken into Material Flow and Information flow. Accordingly two sets of inputs and outputs are shown : data-information and materials-goods.
Regulations & Control

Mgmt. Plng. Design Ctrl. Check

Data Materials

Monitor

Information Goods

Procure

Process Phy. Res.

Deliver Technol ogy

HR

Capital

IMDR/DM1/Systems Theory

Lecture Note: Types of Systems A. Deterministic: These systems produce a definite output by carrying out the process exactly as predetermined on the specific inputs. If the inputs and process are invariant, then the system will give the identical output with certainty. This is true of mathematical models and under highly controlled laboratory processes. Automation aims at making systems deterministic. Probabilistic : These systems produce an output which shows variations in a range. They do not produce exactly the identical output everytime. It is possible to estimate the probability of getting an output with different values in the range, e g scooter manufacturers claim a certain average of kms per litre under test conditions, implying thereby that you will get an average around that figure but not exactly the same, because conditions vary. It is important to remember that in most empirical systems, the actual varies from the calculated or the expected output. Figure out why. Also try to link it to the concept of feedback. B. Open : These are systems which depend on the environment for supply of data, energy and matter as inputs and also for exchange of output, which is not consumed by the system itself. These systems therefore interact with the environment constantly. Businesses fall in this category and so do most living systems. Closed : These systems do not depend on the environment for supply of inputs or exchange of output. They are self-sufficient. The village economy of olden times could be considered a closed system. Some government organisations function as if they are closed systems. The open system concept makes use of two concepts :environment and boundary. Environment is all that is relevant to the systems functioning but outside its control. Boundary lays down the area of decision making which is within the systems control and is subject to both the system and the environment reaching an agreement about it. Boundaries may expand or contract depending on whether the system is contributing to the well-being of the environment or otherwise. C. Black box: A system is a black box to an observer who knows little about its internal process but can observe invariant relationships between its inputs and outputs.

IMDR/DM1/Systems Theory

Lecture Note on Recursion Context: The observer chooses a chunk of reality for his purpose and reconstructs it as a system, focusing his attention on the systemic phenomena. In the process, the rest of the reality is seen as the environment of the system-in-focus. Meaning: Every system contains systems in it and is contained in another system. Implications: 1. The concept, elements and principles with the help of which we understand the system-infocus, would be equally applicable to the understanding of sub-systems and super-systems. 2. The functioning of large and complex systems is likely to be intelligible without having to resort to different analytical tools for each of the many subsystems. Examples: 1. Look at the consumer products division of a Pharmaceutical company in terms of its boundaries. Look at the boundaries of soaps and toiletries group of the consumer products division. See if this tells you something about the relationships within the Pharmaceutical company. 2. A description usually offered runs like this: The Sales Manager decides the targets and the plans and the Sales Representative executes the plan by performing the selling activities. The SM makes decisions and the Rep implements them. By the same logic, can we say that the GM makes decisions and the SM implements them ? The MD decides and the GM implements? Important: In both cases, first decide what system-in-focus you would choose. The Principle of Recursion The rules by which a system is analysed are the same for analysing the subsystems and the supersystems, as systems.

IMDR/DM1/Systems Theory Lecture Note Integration and Co-ordination Context A part in a system functions as a part of the system alongwith other parts. There is thus action within and interaction with the rest. In the closed systems view, the focus is only on the action within in terms of efficiency, quality etc. In the open systems, the emphasis is on the FIT between the part and other parts. Meaning FIT in respect of the part- processes and processes going on in the other parts. -Coordination FIT in respect of the part-output and the System output: This requires the simultaneous contribution of the part-output to the System-outputIntegration Coordination This means Continuous Directive Correlation of Activities. When several activities are being performed in the organisations in an interconnected way, the output of one is needed as the input for the other or is a necessary condition for the performance of the other. They need to be correlated in time and place. Materials are the input for Production. Availability of manpower is a necessary condition for production. Working capital is a necessary condition for procurement as well as production. If there is a shortage of working capital, materials may not be procured in time and production may be delayed, leading to losing the opportunity to sell. So funds position must be monitored continuously in such a company so that among many options, either funds are raised to the required extent or orders are not booked beyond manageable limits or delivery promises are not made ambitiously. Coordination involves communication to enable adjustments in interconnected activities. Coordination is achieved through Plans and Reviews, Hierarchy, Information systems, Meetings. I nt e gr ati on This is defined as the property of the system whereby as the parts achieve their respective objectives, they contribute to the achievement of the overall system objectives. This property is achieved primarily by two processes in goal setting: first, the different dimensions of the system objectives are identified. Secondly, the overall objectives are broken down into partobjectives, i.e., objectives of the subsystems. The part objectives must incorporate relevant dimensions of the overall objectives. For example, if the overall objective is defined as a certain rate of Return on Investment, then this objective must be broken down as Net Profit Margin/Turnover of Assets. Further breakup would create a hierarchy of objectives. DuPont company used this principle and created a chart.

IMDR/DM1/Systems Theory Implications 1. It is possible to confuse Coordination with Integration, which creates problems in practice. 2. Fit does not arise spontaneously in human organisations. It has to be designed and executed. 3. Mere coordination without integration is likely to be ineffective. 4. Integration calls for careful delineation of the hierarchy of objectives. 5. Coordination calls for meaningful flow of information. [refer to tools of coordination in MP] Examples: 1. A frequently encountered phenomenon in manufacturing industry is the long delay in execution of orders coupled with buildup of inventory of raw materials and work in process despite all departments meeting their objectives. The overall system objectives are in terms of quantity, quality, cost and time. The quantitative dimension is met but others are not. The solution frequently suggested is better coordination. 2. If the private sector is to participate in Defence technology development, how do you ensure that the Private firms earn money in the process? 3. If Air India is to boost tourism by attracting non-NRI traffic, how would they recover the extra cost of advertising aimed at that segment? How do you ensure that all participants in the Tourism game coordinate with each other ? 4. People pulling at a Juggernaut scream/shout/sing in chorus.

IMDR/DM1/Systems Theory Lecture note: Algorithm and Heuristics Context: A large proportion of activities in a system would be repetitive and yet there would be new elements arising from interaction with a dynamic environment. e g introduction of new technology, launch of a new product, entry into a new market. It is then necessary to see how the system deals with the elements of repetitiveness and change in the operations. Meaning: Algorithm refers to a step-by-step procedure for moving from an initial state to the desired state. The action component can take the form of a series of sequential and simultaneous steps. From repetitive action emerges some learning about the cause and effect relationships. This knowledge can be converted into rules for action, which are in the nature of situation-actionoutcome linkage. e g starting a vehicle in winter, purchasing materials, making payments. In a dynamic environment things are not static. Changes in the environment introduce new elements in the situations, and present scenarios which we encounter for the first time. Algorithms are inadequate to deal with such new situations, because the situation-actionoutcome linkages are not fully known in advance. Such situations are approached with some guided search. The guideline, derived from existing knowledge, helps divide the situation into large chunks, so that search can be directed to a single chunk. Within that chunk, there may be a further division using some other guideline and this may be repeated till we have gathered sufficient knowledge for making a choice and acting it out. This is called a Heuristic procedure. The guidelines are not rules; they do not lead to a choice, but help in the search for appropriate course of action. e g reversing a car, driving in a new city. Implications: 1. Heuristic repeated would lead to discovery of Algorithms, which would hold good provided the situations encountered exhibit the same characteristics, as are assumed in the formulation of the algorithm. 2. Operations in Management are amenable to algorithms; however, decisions in a changing environment would often call for heuristics. Examples: Project Management, R & D, New Product Development. 3. It is essential for managers to train their perception for distinguishing repetitive elements of the situation from the unique elements and combinations. Example: medical diagnosis. 4. Contingency approach in Management recognises the value of both algorithm and heuristics. Examples: Driving, Criminal Investigation, Accounting, Cost Accounting, Selling, Marketing. Question: Make a broad judgement about the class of activities in an open system which can be called algorithmic and the other as heuristic.

IMDR/DM1/Systems Theory Lecture Note Law of Requisite Variety Context: The concept of a system gives us a hold on the elements and their interconnectedness. The functioning of the system is understood in terms of Algorithms and Heuristics. To understand the movements of the system vis-a-vis the environment, we use the concept of the state of the system. Meaning State of the system: Characterisation or description of the system in a specific context of time and place in terms of one or more parameters relevant to the observer's purpose.
EXAMPLE: Pesticide Mfrer, the Farm, the Waterbodies all undergo changes as the mfrers

decide to increase the concentration of pesticides. A toiletries mfrer introduces a new product such as a fairness cream.

Variety: The number of possible states of the system under consideration.

EXAMPLE: Sales turnover in Rs has a variety of three, i.e., it increases, remains same or

decreases. Assuming price per unit has increased, how many states of the system are possible ?

Variety Selector: These are variables, with which we characterise the state of the system.
EXAMPLE: Sales turnover, Price and Volume are variety selectors.

Requisite Variety: The variety required in the system for a particular purpose.
EXAMPLE: In traffic lights, you can have red, amber and green or red, blinking amber and

green or red, blinking green and green or red and green. How do you make a choice? W R Ashby's Law of Requisite Variety : Only Variety ( in the System) absorbs the Variety (in

the environment). Absorption means maintaining the desired state of the system under differing states of the environment. The two modes are attenuation and amplification. Attenuation (making thinner and longer) The system recognises the variety in inputs and organises requisite number of channels for the input to enter the system, whereby it can handle the variety without destabilising its functioning.
EXAMPLE: Material Inspection, Patient information form, OPD,

Amplification (enlarge and enhance) The system establishes multiple points of contact with the environment so that it is not destabilised on account of blocking of any path of contact.
EXAMPLE: Multiple products, multi-media, increasing ones vocabulary, mail services.

Exercises:
Computerised Rail Reservation, Razor Blade, WINDOWS software.

IMDR/DM1/Systems Theory
Lecture Note: P r i n c i p l e s o f O p e n S y s t e m s

Context Open systems depend for their survival on the interactions with the environment. The environment is not static but a dynamic entity. Things and phenomena are constantly changing. The open system has to adjust to these changes in the short run and adapt to the changes in the long run. Most open systems exhibit certain common characteristics in the process of adjustment and adaptation. In terms of the LRV, these characteristics help the system absorb the varieties in the internal and external environment. These were first identified as such by Katz and Kahn, social psychologists. Characteristics Adjustment : Cyclicality, Negative Feedback, Steady State Adaptation : Negative Entropy, Differentiation, Equifinality, Dynamic Homeostasis Adjustment Cyclicality is essential for an ongoing interaction with the environment. If the system were to function intermittently or on one-off basis, the environment would have to turn to other alternatives for fulfilling its needs. e g a daily newspaper must come daily. Negative Feedback is information that tells you that the system is going away from its objectives. In an open system, variation (mistakenly called a deviation) is a natural and central phenomenon. Adjustment as a process is possible only if the system has a provision of negative feedback. Positive feedback is not essential, but desirable. e g customer complaint analysis Steady state is maintaining a stable ratio of output to input despite external fluctuations so that no subsystem is stretched beyond its capacity. e g If the demand increases beyond a point, you start another shift. Adaptation Negative entropy refers to the surplus energy stored in the system which is used to compensate depletion of physical and psychological capacity. It can take the form of liquidity, knowledge-base, surplus assets, leadership etc. Every system has an inevitable tendency towards entropy or disintegration. Open systems cannot counter this tendency but only try and compensate for it. This is energy required for keeping the system together. Differentiation is the organisation of certain activities into autonomous units. Over time, the system recognises the importance of certain activities in the changing environment and separates them from other activities into distinct units. e g HRD, Market Research. This creates

IMDR/DM1/Systems Theory possibilities of better outputs. Equifinality is a property of reaching the same endstate from different initial states. This is possible if the system recognises and organises different pathways of interaction with the environment. eg multiple media for communication, multiple channels of distribution, general purpose machines . Dynamic Homeostasis refers to the systems capability of reaching a steady state in a changed scenario. The system grows in volume yet retains the basic structure which enables it to reach a steady state. e g the human body grows from infancy to adulthood, yet retains the basic structure. Implications These characteristics are not a blueprint of adaptation, simply because they are defined at a high level of abstraction. They help us analyse the different phenomena in the organisation from both a short term and long term perspective and identify the character of changes taking place in the organisation. All the characteristics are related and not separate. If the system gets differentiated, this itself will accelerate the process of entropy. It will also call for attention to mechanisms of achieving the steady state. Similarly if the system starts creating new pathways of connecting with the environment, it would call for ensuring some degree of cyclicality of operations on different pathways. The process of growth calls for new mechanisms of negative feedback. The important thing about the open system is the fact that any adjustment is not limited to that time and space but has consequences affecting other parts of the system in a variety of ways.

IMDR/DM1/Systems Theory Lecture Note Levels of Abstraction

Context

When we interact with reality, we receive considerable information from the world and process it and generate action to continue the cycle of interactions. We deal with objects, people, activities and events, besides ourselves. The internal processing of all this multitude of stimuli goes through certain stages before it finally leads to generating actions.
Abstraction

This term refers to separation of an idea from a particular instance. Levels of Abstraction suggest that this separation goes from one stage to another.
Perceptual Concrete :When we actually, physically see, touch, hear, taste and smell things, we

have a concrete experience of the particular situation. There are many things which cannot be dealt with unless we have a concrete experience of the phenomenon. Instances of such situations are Personal Interview for Selection, Field visit by an Army General, Tasting of a dish under preparation by the cook. This is the Perceptual Concrete Level.
Imaginal Concrete : The concrete experience leaves behind its memory in some form with us.

We can bring before our mind's eye the image of that experience and think about it without having to go through the same experience. We draw sketches, diagrams or show a particular thing by enacting a few gestures. Examples are Product photographs, sketches in the operating manual, TV Commercials
Conceptual Concrete : We now use a single word to denote concrete phenomena, which makes

thinking about it more efficient. This makes it possible to prepare a Shopping List, an Attendance Muster. We have an efficient way of dealing with concrete phenomena by giving them particular labels. This is the conceptual concrete level.
Conceptual Abstract: At this level, we are now dealing with ideas and notions, which to start

with talk about common properties. From child, man, woman, old man and old woman, we abstract the notion of being "human". From a lot of objects of comfort, we derive the notion of Luxury and call these as Luxury goods. Similarly, we talk of Demand, Supply, Profits, Inflation, Satisfaction at a conceptual abstract level.
Theorising/Pure abstract : Most theories would talk about the connections, causal or

correlation, between two or more abstract notions. For instance, intelligence contains within it several abstract notions arranged in a particular way. Similarly, when we refer to quality control, it is being thought of at the pure abstract or theorising level, connecting two notions of quality and control. Function and utility: By freeing oneself from the particularities of the concrete situation, it is possible to focus on selected aspects of the reality and create alternative arrangements in the form of concepts and or images, choose one before making changes at the concrete level. For managers, it is necessary to move from the concrete to the abstract and back to the concrete level, because they have to make ideas work. CASE: