Lecture 8

Organizations as Systems
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 Lesson Outcomes
• At the end of this lesson, the student should be able to
explain and apply:
1. What an organization is and its key characteristics.
2. Organization as a system.
3. The systems approach to management theory.
4. Benefits and limitations of system approach to
organizations.
5. Real world business applications of system theory or
system thinking.

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 What is an Organization?
• An organization is a structured entity or group of individuals
that come together to achieve specific goals and objectives.
• Organizations can be of any size, from small businesses with
a few employees to large corporations with thousands of
employees.
• Organizations can also take various forms, including
businesses, non-profit organizations, government agencies,
educational institutions, or community groups.
• Organizations are defined by key common features or
characteristics as discussed below.
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 Organization Characteristics
• Purpose: An organization's purpose is its fundamental reason
for existing (i.e., its reason for existence). An organization's
purpose is important because it provides a sense of direction for
the organization (mission, vision, or core values). E.g., the
purpose of a non-profit organization may be to provide access to
education for underprivileged children.
• Goals/Objectives: Are specific, measurable targets or
outcomes that an organization strives to achieve within a defined
timeframe. They are derived from the organization's purpose and
help translate the purpose into actionable steps and milestones.
Goals can include financial targets, market share, customer
satisfaction levels, etc.
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 Organization Characteristics
• Structure: Organizations have a formal or informal structure
that outlines the relationships, roles, and responsibilities of
individuals within the organization. This structure helps define
reporting lines, communication channels, and decision-making
processes.
• People: Organizations are made up of people who work
together to achieve the organization's goals. These people
may have different skills and abilities, but they all share a
common goal. This includes employees, managers,
executives, volunteers, or members, depending on the type of
organization.
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 Organization Characteristics
• Resources: Refer to the assets, capabilities, and inputs that an
organization possesses and utilizes to carry out its activities,
achieve its goals, and maintain its operations. These resources
can include human resource, financial, buildings, equipment,
information, etc. The resources is crucial for the organization's
success and competitive advantage.
• External Environment: Organizations operate within a broader
external environment that includes competitors, customers,
suppliers, regulatory frameworks, economic factors, and societal
influences. The organization must adapt and respond to
changes in the external environment to remain relevant and
successful. 6
 Organization Characteristics
• Processes: Organizational processes refer to the
systematic series of steps and activities that are followed
within an organization to accomplish specific objectives or
tasks. These processes outline how work is done, how
information flows, and how decisions are made within the
organization. These processes determine how the
organization achieves its goals. E.g., students admission
and examinations at KCA University.

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 Organizations as Open Systems
• Organizations can be viewed as complex systems.
• A system is a collection of parts (or subsystems) integrated to
accomplish an overall goal
• In the case of an organization, the parts are the people, the
processes, and the resources, among others.
• If one part of the system is removed, it affects its performance.
• Organization’s goal is to produce goods or services that
customers want and need.
• A systems view of organizations can be helpful in understanding
how they work and how to improve their performance, including
the challenges that organizations face, such as competition,
changing customer needs, and technological change.
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 Organization as an Open System
• The organization is a system - made up of components which
work together to achieve an overall goal.
• These components can be defined in any number of ways, such
as different functions.
• For instance, an organization is made up of various teams
performing specific functions: HR, Finance, Sales/Marketing, IT
etc., depending on the nature of the organization.
• Although they perform different roles they are all working
towards organization’s overall goal (all these different functions
are dependent on each other).

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10
 Organizations as Complex Systems
• Complex systems refer to systems that are composed of
numerous interconnected and interdependent components
whose behavior is difficult to predict or control.
• They have emergent properties. Such properties have unique
characteristics that arise from the interactions of system
components and cannot be fully understood or predicted by
analyzing their individual parts in isolation.
• They are also characterized by interconnectedness,
interdependence, feedback loops, adaptation to change in
order to survive, non-linear where small changes in the system
can lead to large changes in its behavior, multiple components
with different properties and interactions, etc.
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 Examples of Complex Systems
• Healthcare Systems: Encompasses various interconnected
components, including hospitals, clinics, healthcare providers,
insurance companies, pharmaceutical companies and regulatory
bodies. The interactions between these components, along with
the flow of patients, resources, and information, create a
complex system that influences the delivery and quality of
healthcare.
• Businesses: Large companies that have multiple departments
(marketing, supply chain, finance, and human resources), teams,
interdependent functions, business partners such as customers
and suppliers. The interactions between these different
components contribute to the overall behavior and success of
the organization.
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Benefits of Viewing Organizations as Systems
• The system approach, also known as systems thinking, is
a holistic and integrated approach to understanding and
managing organizations.
• It views an organization as a complex system composed of
interrelated and interconnected parts, where changes in
one part can impact the entire system.
• Overall, the system approach offers a valuable perspective
for understanding the complexities of organizations and
managing them effectively as discussed below:

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Benefits of Viewing Organizations as Systems
i. Optimize Performance and Efficiency: Taking a systems
perspective allows for the identification of inefficiencies and
bottlenecks within the organization. This understanding
facilitates process optimization, resource allocation, and
performance management, leading to enhanced
productivity/effectiveness.
ii. Improved Communication and Collaboration: When people
understand how the organization works as a system, they are
better able to communicate and collaborate with each other.
This can lead to high productivity, improved customer care,
improved decision-making and problem-solving.
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Benefits of Viewing Organizations as Systems
iii. Adaptability and Resilience: It can help to improve the
organization's ability to adapt to change (political, economical,
technological, legal, etc). When the organization is viewed as a
system, it is easier to see how certain changes in one part of
the system can affect other parts of the system. This can help
the organization to adapt to change more effectively and
minimize risks.
iv. Effective Problem Solving: The systems perspective helps us
solve problems in a thorough and organized way by focusing
on the underlying or root causes, and selecting the best cost
effective solution to address the problem.
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Benefits of Viewing Organizations as Systems
v. Long-term Planning: The systems view promotes long-term
thinking, ensuring that organizational decisions align with
strategic goals and benefit stakeholders in the future.
vi. Enhanced Decision-Making: Understanding the connections
between different parts (i.e., departments) of the organization
helps leaders make better decisions that consider the broader
impact and benefit the organization as a whole. hey can
consider the potential impacts across the entire organization,
minimizing unintended consequences and making choices
that benefit the organization as a whole.
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Benefits of Viewing Organizations as Systems
vii. Better Understanding: It helps us gain a deeper
understanding of how different parts of an organization work
together and how they affect each other. This broader
perspective allows us to see the organization as a whole
rather than focusing on isolated components. Identifying
Interdependencies, highlights how changes in one area can
impact other parts of the organization. It enables leaders to
anticipate and mitigate potential ripple effects of decisions
or changes they make. E.g., the effect of reducing or
increasing resources.
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Benefits of Viewing Organizations as Systems
viii.Continuous Improvement: The system approach
supports a culture of continuous improvement by
encouraging organizations to learn from feedback, monitor
performance, and make necessary adjustments.

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 Limitations of System Approach
1. Resistance to Change: Implementing changes within an
organization based on a system approach can face
resistance from stakeholders. The interconnectedness and
interdependencies of various parts mean that changes in one
area may have unintended consequences or disrupt existing
relationships. E.g., ERP system implementation.
2. Difficult to measure the impact: Measuring the impact of a
systems approach on an organization's performance can be
challenging. The effects of a systems approach are often
indirect and may not be immediately visible. It takes time for
the benefits to become apparent and measurable.
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 Limitations of System Approach
3. Difficult to manage: This is because it requires managers to
be able to think in terms of the big picture and to understand
how the different parts of the organization interact with each
other. It also requires managers to be able to make decisions
that are in the best interests of the organization as a whole,
even if those decisions may not be popular with some
employees or stakeholders.
4. Implementation challenge: Managers may find it difficult to
implement changes that are necessary to improve the
organization's performance, because changes to one part of the
system can have unintended consequences for other parts of
the system.
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 Limitations of System Approach
5. Organizations are not the same: The theory assumes that
most organizations are big, complex, and open systems.
This assumption overlooks the diversity of organizations, as
they can vary in size, structure, and complexity.
Organizations can differ significantly in their goals,
structures, environments, and operational processes.
6. Time and Resource Intensive: Adopting a system
approach requires significant time, effort, and resources. It
may require expertise in systems thinking and modelling
techniques, to achieve desired results.
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 Limitations of System Approach
7. Limited Predictability: Predicting the exact outcomes of
changes in an organization is difficult because of unforeseen
interactions and feedback loops. The system approach
cannot always give precise predictions because
organizations are complex and constantly changing. E.g., If
a company introduces a new product, it may have an impact
on its competitors, which could then lead to changes in the
market.

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 Limitations of System Approach
8. System Boundary: Defining the boundaries of an
organization's system can be complex. Organizations are
influenced by external factors like the market, competitors,
and societal influences, which are challenging to incorporate
into the system framework. It can be difficult to determine
where an organization's system ends and external
influences begin, which can impact how we understand and
analyze it.

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 Systems Approach to Management Theory
• The systems approach to management theory is a
management philosophy that views an organization as a
system, or a set of interrelated parts that work together to
achieve a common goal.
• The theory was developed in the early 1950s by Ludwig von
Bertalanffy.
• The systems approach emphasizes the importance of
understanding the interactions between the different parts
of an organization and the environment in which it operates.

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 Systems Approach to Management Theory
• Von Bertalanffy argued that all systems, whether they are
biological, physical, or social, share certain common properties:
i. Interdependence: The parts of a system are interdependent,
meaning that they cannot function independently of each
other.
ii. Feedback: Feedback refers to the information or signals that
a system receives about its current state or performance.
Systems use feedback to regulate their behavior. Feedback
can be positive, which reinforces the system's current
behavior, or negative, which counteracts the system's current
behavior.
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 Systems Approach to Management Theory
iii. Goals: A system goal is a desired outcome that a system is
designed to achieve. System goals are important because they
provide a sense of direction for the system and help to ensure
that the system is working towards something. System goals
can also be used to measure the success of the system.
System goals can be short-term/long-term or
overall/departmental, etc.
iv. Environment: The set of conditions that surround a system
and influence its behavior. The system environment can include
physical (climate & terrain), social (culture & values), and
political factors (laws, the regulations, and the policies that
govern the system).
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 External Environment
• The system as a whole is affected by both internal and
external environments.
• The external environment of an organization involves all
external forces affecting the company over which it has no
direct control.
• External environment factors or conditions that are outside
the organization but affect its operations are referred to as
PESTEL (Political, Economic, Social,
Technological, Environmental and Legal factors).
• Example – taxation, interest rates, government policy, etc.

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 Components of an Organizational System
• The system approach considers an organization as
composed of five key components:
1. Inputs: These include raw materials, human resources,
capital, information, and technology, which are the
resources and elements that enter the organization to
support its operations.
2. Transformational Process: This encompasses employee
work activities, management activities, and operational
methods, which are the processes and activities that
transform the inputs into

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 Transformational Processes
• Employee work activities refer to the tasks, duties, and
responsibilities performed by employees within an organization
to contribute to its operations and achieve its objectives.
• Management activities refer to the tasks and responsibilities
performed by managers within an organization to plan,
organize, coordinate, and control resources and processes to
achieve organizational goals and objectives.
• Operational methods refer to the specific procedures,
techniques, or strategies that are employed within an
organization to carry out its day-to-day activities and achieve
its operational goals.
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 Components of an Organizational System
3. Outputs: These include products or services, financial
results, information, and human results. They are the
outcomes or results generated through the transformational
process.
4. Feedback: The results and outcomes from the outputs
provide feedback that influences the inputs. This feedback
loop enables the organization to assess its performance and
make necessary adjustments.

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 Components of an Organizational System
5. The Environment: This encompasses internal and external
factors that impact the system. Internal factors consist of the
organization's culture, structure, and resources, while
external factors involve the market, competition, legal
regulations, and societal influences.
• Therefore the system approach helps us understand how
organizations work and interact with their environment. It
considers five key components and their relationships,
allowing us to see the organization as a dynamic and
interconnected system.
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 Internal Environment
• The internal environment factors refer to anything within the
company and under the control of the company. They include:
1. Plans & Policies – they provide guidelines on employee
behavior.
2. Resources – Human resource skills, Financial capacity and
Technology available provides competitive advantage.
3. Organizational culture refers to the shared values, beliefs,
norms, and practices within the organization.
4. The organizational structure defines the hierarchy, roles, and
relationships within the organization.
5. Effective leadership provides direction, motivates employees,
and creates a positive work culture.
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The Systems Approach to Management

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Components of System Theory

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 System Relationships and Dependencies
• All systems and subsystems are interrelated and
interdependent.
• When any element of a system is changed or eliminated,
the rest of the system’s elements and subsystems are also
significantly affected.
• All systems process inputs from their environments. By
definition, processes change or transform inputs into
outputs.
• Another aspect of organizations as systems is that all
systems are contained by boundaries separating them
from their environments
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 System Relationships and Dependencies
• To continue to adapt and survive, organizations must be
able first to import people, raw materials, and information
through their boundaries (inputs), and then to exchange their
finished products, services, or information with the outside
world (outputs).
• Feedback is one form of system control. As systems, all
organizations use planning and control to manage their
resources effectively

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 Organization as a System
• Organization as systems refers to an approach to
conceptualizing organizations as systems based
on systems thinking and theory.
• The term system, implies an orderly arrangement, an
interrelationship of parts. In the arrangement, every part has
a place and plays a definite or unique role.
• The parts interact with each other to deliver results.
• A system is defined by its boundaries - the limits that
identify its components, processes, and interrelationships
when it interfaces with another system.
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 Organization’s Hierarchical Levels
• The systems approach recognizes that organizations consist
of multiple hierarchical levels (i.e., different levels of
authority and responsibility), from individual employees to
teams, departments, and the overall organization.
• Each level has its own subsystems and functions, and the
performance of each level contributes to the overall
performance of the organization.

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 Organization as a System
• Organizations viewed as systems, are composed of smaller
interrelated subsystems serving specialized functions.
• Each of these subsystems receives inputs from the other
subsystems and turns them or process them into outputs
for use by other subsystems.
• The structure of the organization defines how each of the
subsystems (organizational departments/units) relate to
each other in terms of reporting (who reports to whom), and
communication through out the organization.

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 Organization as a System
• Systems thinking looks at things by looking at the whole
system (organization), where the parts of organization (i.e.,
departments or business units) should always work to
benefit the whole organization.
• Systems thinking is concerned with how things work and
fit together.
• Systems thinking informs strategic thinking which is
concerned with where the organization should go and
how to get there (i.e., business strategies that guide the
organization to meet its objective ad goals)
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 Organization as a System
• The view of organizations as open social systems that must
interact with their environments in order to survive is known
as the systems theory approach.
• Organizations depend on their environments for several
essential resources:
• Customers who purchase the product or service
• Suppliers who provide materials
• Employees who provide labor or management
• Shareholders who invest, and
• Governments that regulates.
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 Example: KCB Bank as a System
• KCB bank can be seen as a open system that made up of
multiple components and processes that work together to
provide financial services:
i. Business Units or Departments – Various departments or
business units work towards achieving organizational goals.
E.g., Sales & Marketing, IT, Customer care, Human resource,
Finance, Risk management, etc.
ii. Physical Infrastructure: KCB Bank has a physical
infrastructure comprising branches, ATMs, and data centers
spread across Kenya and East Africa. The branches are
networked using an information system (i.e., the core banking
system). 42
 Example: KCB Bank as a System
iii. Core Banking System: The core banking system is a
software platform that manages customer accounts,
transactions, and other banking operations. It is responsible
for account opening, transaction processing
(deposits/withdrawals), interest calculations, statements
generation, and customer relationship management.
iv. Customers: Customers are the primary participants in the
banking system. They include individuals, businesses, and
organizations that use the bank's services, such as
depositing money, obtaining loans, or conducting financial
transactions.
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 Example: KCB Bank as a System
v. Financial Products and Services: Banks offer a variety of
financial products and services to meet the diverse needs of
their customers. These may include loans, credit cards,
mortgages, investment products, insurance, and wealth
management services.
vi. Regulatory Compliance: KCB regulated by the government
through the Central bank of Kenya to maintain stability,
protect customers, and prevent financial crimes such as
money laundering and fraud. KCB failure to comply with rules
and regulation may lead to penalties or closure of the bank.

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 Example: KCB Bank as a System
vii. Payment and Clearing Systems: This is a set of
arrangements and procedures through which KCB bank
process and settle payments between their customers. E.g.,
when you are a member of KCB and you perform electronic
funds transfer to KCA University fee account at ABSA or
Cooperative.
viii.Interconnectedness: Banks are interconnected with other
financial institutions, such as central banks, commercial banks
such as Equity, Coop bank, Cooperatives, PesaPoint, mobile
money, corporate clients, etc. They are also part of the global
banking system. These interconnections allow for collaboration
between financial entities.
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 Organization and its Environment
• Organizations do not exist in isolation - Organizations exist
and operate in a competitive environment.
• Organization as systems refers to an approach to
conceptualizing organizations as systems based on systems
thinking and theory.
• Feedback is received from within the organization and from
the outside environments around it.
• Anything external to an organization’s boundaries is
considered to be an environment.
• Numerous environments, with varying degrees of stability,
constitute the person’s social environment in which
organizations exist. 46
 Examples of Organizational Environment
• The community environment in which the organization is
physically located, which is shaped by the size of its
population and its demographic profile, including factors such
as education and average income;
• The economic environment, influenced by market factors,
including competition;
• The political environment, controlled through state and local
governments; politicians, and
• The legal environment, drafting laws and guidelines to
regulate businesses.

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 Systems Interconnection
• System interconnection refers to the process of
connecting or integrating different systems or components
together to enable communication, collaborations, data
exchange, or coordination between them. E.g.,
• Public transportation systems, such as matatus, buses,
taxis, and trains, rely on interconnected systems to provide
efficient and reliable services. These systems include traffic
police, fare payment systems, scheduling and dispatching
systems, passenger information systems, vehicle tracking
systems, road/rail network, commuter stages, etc.
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 Openness of Organizations
• The open system approach views organization as reacting to
and acting upon the environment.
• The openness of organizations refers to the extent to which
they actively engage with external stakeholders, embrace
external inputs, and foster collaboration.
• Openness in organizations refers to the degree to which they
are open to new ideas, information, and people.
• Therefore, open organizations are more likely to be
innovative, adaptable, and successful than closed
organizations.

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 Openness of Organizations
• There are a number of factors that contribute to an
organization's openness, including:
i. Leadership: Open organizations are typically led by
leaders who are open-minded, collaborative, and willing to
take risks.
ii. Culture: Open organizations have a culture that
encourages communication, collaboration, and innovation.
iii. Structure: Open organizations have a structure that
allows for flexibility and adaptability.

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 Closedness of Organizations
• Closedness of organizations refers to the extent to which an
organization is self-contained and operates with limited
interaction with external entities.
• A closed organization tends to have strict boundaries, limited
information sharing, and minimal collaboration with external
stakeholders. Features of such organizations include:
i. Limited Information Flow: There is a tendency to control
and centralize information at the top management, leading to
limited transparency and knowledge sharing.
ii. Limited Feedback: Closed organizations tend to limit
feedback from employees.
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 Closedness of Organizations
iii. Hierarchical Structure: Closed organizations often exhibit a
rigid hierarchical structure, with authority and decision-making
concentrated at the top levels. There is limited autonomy or
empowerment among lower-level employees.
iv. Resistance to Change: Closed organizations tend to be
resistant to change and external influences. Decision-making
is often driven by internal factors rather than external market
dynamics or customer needs.
v. Limited Collaboration: Closed organizations typically have
limited collaboration with external stakeholders such as
customers, suppliers, or partners.
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Openness and Closedness of Organizations
• There is no such thing as an absolutely open or completely
closed organization.
• Organizational openness and closedness exist on a scale or
range.
• Most organizations fall somewhere between being
completely open and completely closed.
• Therefore, most organizations strive to find the right balance
between openness and closedness based on their specific
context, objectives, and the dynamic nature of their operating
environment.
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Organizations as Open Systems
• An open system is a system
that has external
interactions.
• Such interactions can take
the form of information,
energy, or material transfers
into or out of the system
boundary, depending on the
discipline which defines the
concept.
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 Open vs Closed Systems

• A closed system is a system that is completely isolated

from its environment.

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 Business Application of System Theory
• The application of systems theory involves looking at how all
the ingredients (systems) came together to make the cake
(complex system/whole) and how this ultimately gave us the
end result that none of these properties could produce on their
own without a change to their environment.
• This theory is helpful for understanding things like
organizational behavior, organizational change and
organizational development.
• Therefore, enterprises apply this theory in various ways
including strategic management (Mission, Vision &Values).
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 System Theory and Business Strategy
• System theory and business strategy are closely linked and can
greatly influence each other.
• Business strategy refers to a set of actions and decisions that an
organization undertakes to achieve its long-term goals and
objectives. It involves analyzing the internal and external
environment that affect the organization, formulating a plan, and
executing it effectively to gain a competitive advantage and create
value for stakeholders.
• System theory promotes systems thinking, which involves
considering the organization as a whole and understanding the
relationships and interactions among its parts (e.g., departments).
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 System Theory and Business Strategy
• System theory can be applied in a variety of ways, within
organizations including:
1. Using system theory to align strategies with organizational
goals: Business strategy aims to set clear goals and objectives
for the organization and outline the path to achieving them.
System theory helps in aligning these strategies with the
organization's overall mission and vision.
2. Analyzing the external environment: Businesses need to
understand the competitive landscape in order to make
informed decisions about their strategies.

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 System Theory and Business Strategy
3. Identifying the organization's strengths and
weaknesses: Businesses need to understand their own
strengths and weaknesses in order to develop effective
strategies.
4. Setting goals and objectives: Businesses need to have
clear goals and objectives in order to be successful.
5. Developing strategies: Businesses need to develop
strategies based on its strengths and weaknesses, the
opportunities and threats in the external environment, and
the organization's goals and objectives.
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 System Theory and Business Strategy
6. Implementing and evaluating strategies: Businesses need
to implement and evaluate their strategies in order to ensure
that they are achieving intended results.
• Conclusion: One way to apply system theory to business
strategy is to think about the organization as a system of
subsystems. Each subsystem, such as HR, marketing,
operations, or finance, has its own goals and objectives, but
these goals and objectives are ultimately aligned with the
overall goals of the organization.

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 Business Mission, Vision & Values
• The vision, mission, and values statements guide the
behaviors of people in the organization. They direct the efforts
of people in the organization toward common goals.
1. A mission statement defines what an organization is, why it
exists, its reason for being. The mission statement defines
how the organization differentiates itself from other
organizations in its industry. It is broad based.
2. The vision statement describes where the organization
wants to be in the future. It is narrow based and does not
provide specific targets.
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 Business Mission, Vision & Values
3. The Values are the beliefs of an individual or group. The
values statement defines how people in the organization
should behave. It provides a guideline for decision making.
• Therefore, Mission and vision statements play three critical
roles:
i. Communicate the purpose of the organization to
stakeholders,
ii. Inform strategy development, and
iii. Develop the measurable goals and objectives by which
to measure the success of the organization’s strategy.
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Mission, Vision, Strategy & Goals

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 Organizational Vision, Mission & Values
• Organizations have “purpose” - its reason for being in
existence - which is expressed as a mission statement and
goals to be achieved.
• Once organizational purpose/mission, strategy - i.e.,
corporate strategy, business strategy and operations
strategy - and values are clear:
• The organization can be structured in such a way that
roles and functions are clearly defined and
differentiated, lines of
communications and accountability and decision-making
procedures transparent and functional.
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 Organization Strategy
• A business strategy outlines the plan of action to achieve
the vision and set objectives of an organization and guides
the decision-making processes to improve the company’s
financial stability in a competing market.
• The success of any business is determined by the
effectiveness of the strategy it follows.
• Strategies exist at three levels in any organization:
i. Corporate (overall strategy)
ii. Business unit or department
iii. Operational level
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 Levels of Strategy
1. Corporate or company Strategy - is concerned with the
overall purpose and scope of the business to meet
stakeholder expectations. Corporate strategy is often stated
explicitly in a "mission statement".
2. Business Unit / Department Strategy - Focus on how each
business unit or department can achieve its specific
objectives within the broader corporate strategy.
3. Operational Strategy – Focus on the day-to-day operations
and processes/activities of the organization. It influences and
relates to individual employee performance.

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Example: Cascading KCAU Strategy
KCA University Company or
Business
Strategy
Corporate
Strategy

School of
Business Unit or
HR Finance Business Department
Strategy Strategy Strategy Strategy

Individual staff
Anne - Abdi – Malungu - work towards
Prepare Students Teach meeting set
Payroll pay fee students targets
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 Cascading KCA University Strategy
• The Mission of KCA University is to be a creative business and
technology university, training employable and market driven
graduates for sustainable economic development.
• To achieve this, each of the business functional units must come
up with strategies to align with the KCAU overall strategy.
• Each employee within each business unit or department must
work to achieve goals of respective business units or
departments. E.g., Anne (HR) must ensure only competent
lecturers are recruited & prepare payroll, Abdi (Finance) must
ensure students pay fee in time & pay suppliers, and Malungu
(Lecturer) must teach students, set/mark exams, etc.
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 Organizational Structure
• All organizations have a structure that determines
relationships between the different activities and the
members, and subdivides and assigns decision rights -
roles, responsibilities and authority - to carry out different
tasks.
• Structures develop due to the need to organize behavior in
a meaningful way and provide orientation for organizational
members to set actions that comply with organizational
strategy, organizational culture, and, as a result, accepted
patterns of behavior.

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 How a Business is Structured
• To be able to meet the objectives, a business must be
organized or structured. One common way of achieving this
is through functional units.
• Functional unit is the grouping of activities or processes in
order to achieve efficiency and effectiveness.
• Examples: IT, Sales & Marketing Accounting/Finance
• Just as different functions in the human body are
performed and regulated by different organs, different
functions within a business are performed and controlled by
different parts of the business.
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Sample Business Structure

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 Organization as a System
• The Systems Approach to management theory, commonly
viewed as the foundation of organizational development,
views the organization as an open system made up of
interrelated and inter-dependent parts that interact as
sub-systems.
• Thus, the organization comprises a unified singular
system made up of subsystems. For example, a firm is a
system that may be composed of sub-systems (i.e.,
business units or departments) such as Sales &
Marketing, Finance & Accounting, Human resource, IT, etc.

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 Organization as a System
• As such, the various sub-systems should be studied in their
inter- relationships rather, than in isolation from each
other.
• The system as a whole is affected by internal elements (i.e.,
business units or departments) and external elements.
• A system must respond to its external environment.
• As organization as a system is mainly considered open, as it
receives varied forms of inputs from other systems.
• For example, a company receives supplies, information, raw
materials, etc. These inputs are converted to outputs that
affect other systems.
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 Organization as a System
• The systems approach implies that decisions and actions in
one department will affect other departments.
• For example, if the purchasing department does not acquire
the right quantity and quality of inputs, the production
department wont be able to do its job.
• If finance fails to pay employees, they will be demoralized
leading to low productivity or leaving the company.
• This approach recognizes that an organization relies on the
environment for essential inputs. The environment also
serves an outlet for its outputs.
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 Summary
• Like any other system, organizations have inputs, processes,
outputs and environment. Inputs include resources such as
capital, labor, technology, and raw materials. Processes involve
the activities and operations that transform inputs into desired
outputs, such as producing goods or delivering services. Outputs
are the desired outcomes or results achieved by the
organization.
• An organization can be viewed as a system because it is
made up of interrelated parts that work together to achieve a
common goal. The parts of an organization include its
employees, departments, and processes. The goal of an
organization is to produce customer goods and services.
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 Summary
• The systems approach to management sees organizations as
open systems that interact with their environment. This means
that organizations are constantly receiving inputs from their
environment, such as customers, suppliers, and competitors.
Organizations also produce outputs, such as goods and
services, that have an impact on their environment.
• The systems approach to management has several
advantages. First, it helps managers to see the big picture and
understand how the different parts of an organization work
together. Second, it helps managers to identify the interactions
and relationships between an organization and its environment.
Third, it helps managers to develop strategies that will help the
organization to achieve its goals and remain competitive.
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 Summary
• Organizations have specific goals and objectives such as
profitability or remaining a market leader that guide their
activities and efforts. The organization's components and
processes work together towards achieving these goals (i.e.,
system thinking)
• Organizations can also be thought of as adaptive systems
because they are able to change and adapt to changes in their
environment. This ability to adapt is critical for organizations to
survive and thrive in a competitive changing world. They need to
respond to market trends, technological advancements,
regulatory changes, and competitive pressures.
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 Further Reading
1. Using KCA University as a case study, discuss how
understanding the feedback loop can contribute to
continuous improvement and adaptation?
2. Using healthcare sector in Kenya as an example, discuss
how the unintended consequences can arise when a
change is made on one component of the healthcare
system, and how the unintended consequences can be
mitigated or managed?
3. Discuss system theory based on family set up in your
community.
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