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Lesson 2: Defining Real Projects II: a systems approach

Topic objectives:

• to provide an overview of the two main perspectives on systems thinking

• to introduce the key terms with regard to systems thinking

• to show that a system has both an internal and an external environment, and that the

system responds to its external environment in terms of being closed or open

• raise awareness of the boundary problem with regard to organization and systems

thinking

• introduce the concept of post-contingency, or transformational, theory on organization

2.1 Perspectives on systems

In Lesson 1 the problem of defining important terms was raised, and definitions for a number of

terms were offered. This topic will cover several new areas and definitions for the most

important terms will be offered. The term “system,” for example, is perhaps the one of the

easiest to define, but it may also be the most difficult to comprehend initially. However, an

understanding of the two definitions which will be offered for a system is important in that it

underpins the work following in this and subsequent topics, particularly with regard to

organization design. Hence the reason for stressing at this point that it will be worthwhile

individual delegates going over the subject matter of this topic several times, if required, until

they feel reasonably comfortable about their understanding of it.

First, some definitions are necessary. The critical one, of course, is that of a system. Systems are

composed of regularly interacting or interrelating groups of activities. For example,

organizations are complex social systems; attempts to reduce the parts from the whole reduce the

overall effectiveness of organizations. In short, the organization system requires that we

consider all its individual parts and more importantly, their interactions with each other. Let’s

take one example: suppose we sought to improve the performance of the Marketing department

at our company and one of the recommendations was to push them to book more initial orders

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through cutting down technical feasibility studies. Well, Marketing might like this idea but

imagine that you were a project manager with this organization. How would you feel about the

decision to forego feasibility prior to signing a contract? This illustrates one aspect of systems:

you cannot consider the individual parts without seeing how they affect each other and the

overall “whole.”

The original work on systems theory was developed to consider biological systems, where

researchers naturally understood that a human system is a complex organism that mutually

supports and promotes the overall function of the body. For example, we talk in terms of the

circulatory system or the pulmonary system. Biological systems are complicated but mutually

harmonious. That is, the liver does not work against the heart or the actions of the kidneys.

Likewise, any intervention into one body part is going to have implications for the health and

functioning of other parts. This same thinking was later applied to the study of organizations to

illustrate the points made above: an effective social system is one in which all parts are

considered in relation to each other.

2.1.1 The ICE model

Given that within a project there is an intention to produce a specific product or series of

products, a “Widget” for example, there will also be a need for resources. This is the case

regardless of whether a manufactured product, such as a car, or a more ephemeral product

such as a better working environment is intended. Production of Widgets may require inputs

of the resources of labor, machinery and materials into a designed system of production

where they undergo some pre-planned conversion to become the product of that system:

in this case, Widgets. A system can therefore be defined as anything which involves three

factors: inputs of specific resources; a means of conversion of those resources; and the export of

a planned product from the means of conversion. This can be summarised as I(mport),

C(onversion), E(xport) or ICE, as shown in Figure 2.1.

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Figure 2.1 The ICE system model

One useful aspect of this definition of a system is that it can also be applied to just about

anything. Organizations, ranging from the smallest firm through to the largest multinational, can

be seen as being systems of equally validity to that for an individual production system within a

manufacturing facility. The ICE definition, or model, for a systems is therefore potentially highly

versatile and as such, a powerful tool for analyzing the requirements of an organization.

However, it is not the only definition or model available, and prior to dealing with systems

terminology relevant to both models of a system, the second model should be introduced.

2.1.2 The PAC model

A common belief is that the production process needs to accept the imposition of three criteria

commonly linked to production processes: time, cost and quality. Acceptance of such criteria

also denotes recognition of the need for those involved in the production process to work in a

structured, but not necessarily rigid, manner. The function of planning, which was briefly

mentioned previously, is one important component of a structured method of working. To this

can be added the functions of analysis and control, which results in another handy acronym of

PAC (Planning, Analysis, Control). The presence of these three functions within an entity can be

taken as evidence of that entity meeting the requirements for it to be identified as a system. It is

useful to develop some perception of the possible activities within each of the components of

PAC, before returning to a more detailed examination of further systems terminology.

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PAC, because of its structured nature, is particularly relevant to the solving of problems related

to the design and operation of production processes, and this can reasonably be expected to

inform the organization structure design issue also. Typical production problems which respond

well to the structured application of PAC are those which fall into the following categories:

working methods; quality control; production equipment selection, maintenance & replacement.

All of these categories of problems are relevant to production processes in all industries. The

planning of work methods, for example, is often seen as being relevant to productivity levels

when considering efficiency of production, irrespective of whether a hot-air balloon or an

elevated roadway is to be produced. However, prior to being able to carry out any meaningful

planning, the central element of PAC (analysis) has to be implemented; a production problem

has to be analyzed before a solution can be confidently planned. Analysis, however, is a

specialist function with a large body of knowledge to study, and it will therefore only be dealt

with in outline at this point. As would be expected when implementing PAC, any attempt to

carry out analysis requires us to impose a structure. One way to do this is to split the analysis

activity into recognized areas, or sub-activities, within the production system to be analyzed,

such as: human factors; work environment; methods and measurement; machines and

maintenance; materials; and systems synthesis.

2.2 Systems synthesis

Of these sub-activities, systems synthesis could be argued to be the most important. This is

because it allows the effects on the system of changes in each of the other sub-activities to be

evaluated. Evaluation takes place through the process of re-uniting an individual element which

has been analyzed and then re-planned to increase efficiency (a cause-to-effect process) with the

other elements of a system. The effect(s) of the re-planned element on the whole system can then

be identified and assessed to see if there has been a net gain, loss, or no overall change.

Synthesis is also an awkward sub-activity in that it exists within the analysis function of the PAC

model while containing aspects of planning, analysis and control itself. Systems synthesis may

require further adjustments to individual elements to be made as it involves limited further

analysis of the improved system. There may well be the need for trade-offs to ensure that all

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elements are sufficiently compatible to form a coordinated system. Reaching a final decision on

this issue may require a large number of iterations as revisions to the model of the production

process are synthesized into the model, the results evaluated, and further analysis carried out.

Because of this, the actions of analysis and synthesis are generally seen as being 'lockstep' stages

(analyze, synthesize, analyze, synthesize, etc.) in the development of a more effective (ultimately

measured in terms of some form of cost) system. Briefly looking at the areas of the analysis

process individually gives some idea of the factors which can be considered in each of them.

2.2.1 Human factors

Generally seen as the most complex and unpredictable production factor, in an economic sense,

within a production system. This is an important point to consider when seeking to design and

optimize an organization structure. For example, the distribution of resources in terms of wages

around the structure can have effects on the operation of that structure, so there may be a

decision to be made concerning the balancing of paying higher wages to attract and keep skilled

workers against the cost of training and spoilage caused by employing less skilled workers.

Typical considerations when analyzing human factors are: human abilities, placement, training,

motivation, safety and supervision.

2.2.2 Work environment

The work environment exists as a secondary consideration to human factors. The workplace

environment can affect the way human factors interact. For example, a noisy environment may

reduce productivity as workers tire more quickly due to the stress of their environment. A similar

effect occurs in high and low temperature environments, certainly until the people working in

those environments have completed a period of acclimatization. Workplace environment can

affect motivation and safety in particular, and it is important to note that performance in any

production system is affected by the physical environment. Typical considerations about the

workplace environment include: site location, facilities layout, workplace design, and working

conditions.

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2.2.3 Methods and measurement

The design of the workplace can have positive and negative effects on the work environment. In

order to maximize the benefit of a workplace's design, methods & measurement are essential

tools. They should be used to ensure optimal transformation of input to output (productivity),

resulting in minimum waste. Examples of methods by which the production procedures can be

studied are: operations analysis; work sampling; and methods engineering. Examples of

measurement techniques by which the rate of production can be assessed are: time study; work

sampling; and wage/bonus payments. The nature of the methods & measurement sub-activity has

resulted in a strong emphasis on the use of charts. Such charts save writing time, direct the study

in a structured manner and provide complete records. Three groups of charts are utilized by this

sub-activity; survey, design, and presentation.

2.2.4 Machines and maintenance

Modern production systems make considerable use of machines to either generate or facilitate

output. While it is important to view mechanization as being different from both automation and

robotics, the more important factor is to consider the existence of a human machine interface

within the system. Even within the most highly automated work environment a human-machine

interface can still be identified: humans plan the environment, feed it materials and distribute the

product.

Considering the machine aspect initially, there are generally two variables to be considered -

time and money, so a brief, and very simplistic, discussion of some relevant economics concepts

is required. A machine is a capital (money) item in that it costs the organization a given amount

to purchase it. However, the machine also has a value to the organization in that it is bought with

the intention of using it in some form of production, the product of which can then be sold. On

this basis, the general theory is that the machine's loss of value over time is compensated for by

the work it contributes to production. In this way an investment is amortized (maintained over

time). The rate at which it loses value is a function of the maintenance program, with the cost of

maintenance being balanced against the rate at which a machine loses value if it is not

maintained.

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The “value” of machines used in production systems is set to increase in the future as thinking

machines extend the integration of humans and machines, particularly in the areas of computer

aided design (CAD) and CAM (computer aided manufacture). A piece of trivia which might be

of interest at this point is that IBM's early work on using computers to aid the design process

went by an acronym which is a mirror image of CAD: DAC (design aided by computer). Not

many people know that! Headings relevant to the study of machines & maintenance are:

sequencing, line balancing, machine loading, maintenance, waiting lines (queuing).

2.2.5 Materials

One of the objectives for any system should be to have the correct materials required for the

conversion process in the correct amount at the correct place at the correct time. Achieving this

usually causes implementation problems - how much is needed? Where is it needed?

Organization structures respond to the issue of implementation by developing specialist

functions. Three material management functions can be identified at this point: purchasing,

inventory, and material handling. These can be further subdivided to give: purchasing

procedures; inventory concepts, functions, costs, models, management; material handling

principles, applications.

Consideration of such increasing subdivision of specialization is relevant in that it points to one

of the key characteristics of an organization's growth; a bigger organization results in a more

differentiated structure. In order to survive, the organization has to increase the extent of its

interfacing with other organizations around it, and this drives further and further specialization

(differentiation) within the organization. This issue will be returned to in a later topic.

2.2.6 System synthesis

The sub-activity of synthesis has been discussed in some detail previously, but we return to it

here for two reasons: 1) to reinforce the issue of the importance of synthesis at every level of

analysis; and 2) the increasing use of computer technology within the sub-activity.

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Computer technology is particularly on the increase in the areas of materials requirement

planning (MRP) and simulation techniques such as the Monte Carlo technique. Monte Carlo is

basically an iterative process whereby a problem is identified, then analyzed to produce a model

of it. The model is then placed in a simulation which attempts to overcome the problem and a

result is obtained from the simulation. If the result is satisfactory, the changes made within the

simulation are incorporated into the actual production system which should then operate more

effectively. If the result is not satisfactory, the whole process is repeated again and again, each

time with new changes, until a satisfactory answer is achieved. While the value of the Monte

Carlo technique is often debated by professionals across all industries (and there are strong

advocates both for using and not using Monte Carlo), the technique is a good example of how IT

can make life easier. In order to arrive at a solution using Monte Carlo simulation without

computer assistance a laborious process (due to its iterative nature) has to be initiated.

Furthermore, to obtain optimum performance from the production system all of the sub-activities

would have to be analyzed in turn, which can be a time consuming process, even if only the sub-

activities briefly introduced to this point are considered.

2.3 Memory test 1

A few questions to exercise the grey cells:

a) state the two forms for defining and identifying the existence of a system

b) give three of the four categories of production problem which are claimed to respond

well to analysis using PAC

c) name the three groups of charts used by the sub-activity of methods and measurement

d) what is meant by the term “amortized”?

e) what is a significant problem in using Monte Carlo simulation without IT support?

2.4 ICE and boundaries

Having looked at some of the problems involved in implementing the PAC model of a system, it

is time to look again at the apparently simple ICE model of a system. Many people find the ICE

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model's apparent simplicity and versatility attractive, particularly in that the highly structured

nature of PAC seems to have been avoided. This is not altogether the case as the functions of

planning, analysis, and control cannot be completely ignored. If nothing else, earlier topics have

stressed that production cannot be seen as being accidental; it must be intended and therefore

requires some planning. All is not therefore sunshine and roses with regard to ICE, but it is

generally regarded as being more user-friendly than PAC. There is, however, one rather more

significant problem which ICE cannot overcome: boundaries. One component of a system not

mentioned so far is the boundary and this needs to be examined in further detail, particularly

with regard to the definition of the real or true project.

The concept of boundaries within a system can be quite straightforward. Consider the production

of ice-cream, for example. You may or may not think you know much at all about the production

of ice-cream, but at this point it does not really matter either way because you have already

established one boundary within the system which you are going to design: you are intending to

design an organization which will produce a specific item. Not windows. Not engines. Not cars.

Just ice-cream. So how does this help? Well, consider ICE once more, particularly the

conversion component, as this is where the actual ice-cream making will take place. At some

point resources have to move from outside the organization (your ice-cream making company) to

the inside of that organization, where they will enter the conversion process. The point at which

that happens can be referred to as a boundary. The boundary between the conversion and the

imported resources (conversion import boundary) can then become tuned to the process of ice-

cream making. If any resources come along which are not related to the making of ice-cream,

something as ridiculous as reinforced concrete pillars for example, the import conversion

boundary should exclude them from the conversion process. You have now set up your first

quality control activity, which is also a boundary: the import conversion boundary. You have

also taken the first steps towards both the definition of the real project and the constraining of

possible mirage projects.

Not content with just one boundary, you then seek to establish other boundaries as you begin to

suspect these things may be quite useful. Along with the import boundary, an export boundary

can also be established. Assuming that no effort has been made to plan the conversion process,

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things may go somewhat wrong. The wrong color of ice-cream may be produced from time to

time, and such ice-cream will be of no use in subsequent production systems (those of your

customers), so they need to be excluded from such subsequent production systems. This

exclusion (a further quality control activity) can either take place at the point of import by

customers to the subsequent system, or given that product quality is an important consideration

within the first system, it can take place at the conversion export boundary of your system. It is

possible to tune the conversion export boundary of the ice-cream production system to reject ice-

cream which is not the correct taste, color, texture, etc. Because such a range of tuning is

possible, it is vital (for the majority of projects) that it is not left open to the possibility of

introducing a mirage project, such as someone in the project team being convinced that everyone

else’s apparent revulsion with regard to lima bean-flavored ice-cream is simply down to the fact

that it is not available in grocery stores. To this person, this is a situation that can be remedied by

the mirage project of producing large quantities of just such an ice-cream through “tuning” of the

export boundary.

Boundaries are therefore important with regard to how the system's external environment

interacts with its internal environment. This reference to internal and external environments may

sound somewhat medical at this point, but all will be revealed! Your consideration of systems

now needs to be divided into two categories; that dealing with the environment which is external

to the system, and that dealing with the environment which is internal to the system. As it is

debatable which is the easiest to deal with first, the internal environment will be considered

before looking at the external environment.

2.5 Environment and Systems Thinking

Organizations can be structured in an infinite variety of manners, ranging from highly complex

to extremely simple. What is important to understand is that typically, the structure of an

organization does not happen by chance; it is the result of a reasoned response to forces acting on

the firm. A number of factors routinely affect the reasons why a company operates the way it

does. For example, among the most important determinants or factors influencing an

organization’s operating philosophy is its operating environment. An organization’s external

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environment consists of all forces or groups that exist outside the organization and have the

potential to affect all or part of the organization. Thus, some of the elements in this external

environment that can play a significant role in a firm’s activities are competitors, customers in

the marketplace, the government and other legal or regulatory bodies, general economic

conditions, pools of available human or financial resources, suppliers, technological trends, and

so forth. The degrees to which these various factors do play a significant role in affecting the

activities of a company are referred to as the organization’s environmental complexity.

Environmental complexity defines the number of external environmental elements that can affect

our operations and the severity of their potential impact on us. In this way, we can see that the

structure or strategy of a corner grocery store, serving a limited clientele and employing few

people, is not likely to have nearly the degree of complexity that General Motors would possess.

The grocery store is affected by fewer environmental elements (lower complexity) and many of

them would have less severity on their activities than would be the case with the auto maker.

The second key element that defines an organization’s environmental uncertainty is the

dynamism, or change that occurs within each of the elements affecting its operations. Suppose,

for example, that a firm faced not only a complex set of environmental elements, but that these

elements were constantly in a state of flux, changing unexpectedly and often. It would be very

difficult to manage an organization’s environment effectively under circumstances where it was

virtually impossible to predict what environmental elements were likely to affect the

organization and when. Thus, dynamism complicates the manner in which we try and conduct

business. Microsoft Corporation is an excellent example of a company that is affected

powerfully by both a wide and diverse set of environmental elements affecting its operations, but

also by the fact that many of these elements are constantly changing. The lawsuits pending for

alleged antitrust violations affect the manner in which the firm conducts business. The

technological shifts in computer hardware and software are constantly being monitored and

addressed. Customer tastes and expectations are an important continuing concern. The list goes

on.

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The nature of the problem is shown in Figure 2.2. The diagram is a simple method for

categorizing the challenges facing organizations from the environment along the twin

dimensions of environmental complexity, the number of domain elements with which they must

contend and the dynamism, or changeability of those elements. With respect to levels of

environmental uncertainty, we can see that companies operating in relatively stable and certain

environments, such as beer distributorships differ substantially from computer or

telecommunications firms, not simply in the products or services they create but because the

products or services they provide differ dramatically in how they affect and are affected by their

external environment.

The conceptualization is Figure 2.2 is useful because it demonstrates a salient fact: organizations

and their sub-systems can widely differ in terms of the external pressures they face in developing

and managing projects. For some companies, rapid external shifts and constant multiple

pressures are a way of life. Their structural philosophy requires that they organize to take

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advantage of the opportunities and contend with the threats posed by their environment. For

other firms, stability and predictability are much more the standard for their activities. Because

they contend with lower complexity, lower dynamism, or both in their environment, they can

adopt an operating philosophy that allows them to exploit their opportunities and advantages in

their unique ways. For example, prior to a company’s decision regarding the type of structure it

should adopt, it must strongly consider the environment within which it wishes to conduct

business. We will learn more about structural issues in subsequent lessons.

2.5.1 A system’s internal environment

As far as systems for the production of artifacts are concerned, it can be argued that their internal

environment is effectively the process of conversion (production) taking place within them. The

nature of this conversion process can be determined by working backwards from the desired

system product, so that if ice-cream is the required product the conversion process will be

focused on turning specific resources into that product through the use of specific machines and

labor skills. Based upon the requirements of the conversion process, the required imports can

then be identified. In this simple model, it is only when imports enter the system, and the export

leaves the system that any consideration of the external environment needs to take place.

The conversion process determines the system internal environment, in that the environment

must allow the manufacture of ice-cream. Anything which will make it more difficult to produce

ice-cream must be excluded from the internal environment, and this is usually achieved through

the installation of various environment self-checks. One example could be that of heat; too much

heat is, if nothing else, an expensive waste of energy, whereas not enough heat will mean that the

ice-cream may not achieve the required workability and be too hard. The system internal

environment must therefore contain a self-check for monitoring heat levels. With a bit of further

consideration, you could doubtless come up with other possible internal environment self-checks

for the ice-cream production system.

A key consideration resulting from this introduction to the concept of the system internal

environment is that the environment is created and governed in terms of self-checks. It can

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therefore be argued that the internal environment is largely a quality assurance concept, and as

such is relatively controllable by the organization implementing the production system. The

external environment can, however, be a rather more difficult factor for the organization to deal

with.

2.5.2 A system’s external environment

Precisely identifying those items which compose an individual production system's external

environment can appear to be a complex and time consuming process, and in some cases that is

actually what it is! However, at this stage of the introduction to systems thinking, consideration

of a system's external environment need be no more complex than identifying all those items

which the internal environment is dependent upon. For example, in the case of the ice-cream

making system, the system's internal environment will require a number of imports. Possible

imports such as milk, sugar, and vanilla flavor are obvious examples.

All imports have to come into the system through the conversion import boundary, and it is this

boundary which can be used to identify where the internal environment stops and the external

environment starts in this example. A simple approach to this problem is to ask the question

"where do my required imports come from?" Quite frequently the answer will be that the

required imports are supplied by some other producer who operates outside the boundaries of

your system (the ice-cream making project), and as such are largely outside your control. A good

project manager needs to be aware that considerable planning effort may be required to ensure

that their project system's requirements are met by the systems of other projects and production

systems. This leads into a need to consider the issue of open and closed systems.

2.6 Open and closed systems

A final consideration at this point is that it is also highly likely that your project system will

result in an export (product) which acts as an import into a separate system elsewhere. Within an

increasingly global economy, this may mean that your system's export environment boundary

has to link into a conversion import boundary which is part of a project or production system on

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the other side of the planet. This then raises all sorts of other issues, within the context of co-

ordination and communication problems such as trying to communicate through different time

zones, languages and cultures. Such problems are not generally common when dealing with an

organization in the same city as yours; just that at times it feels like they are! A problem of

greater significance for production project systems is that they involve elements of both

sequential production and concurrent production. Sequential production is epitomized by the

general perception of manufacturing processes, where components are gradually added to the

product along a production line, such as in most car plants. Concurrent production refers to the

situation where many components are added at the same time, and generally results in a reduced

overall project or production duration. Within the majority of projects there will be a mixture of

sequential and concurrent production systems required in order to export the final product.

The internal and external system environments for a sequential and/or single production system

may be relatively straightforward considerations, but complications can arise when several

production systems need to be considered at the same time, as in concurrent production. So, for

example, when the fuselage, wings, and engine of the new Boeing 787 are perhaps being

individually constructed in sequential production environments controlled by separate

organizations, the overall intention is to produce a functioning airplane. Therefore, the individual

subassemblies (fuselage, wings, engine, etc) have to be brought together at some point. The

question then becomes one of does the organization structure itself around starting to assemble

the complete airplane only once all the individual subassemblies have been completed, or does it

aim for a structure which allows it to begin assembly, even though some of the subassemblies

may not have been completed at that point? Airbus’s massive A-380 aircraft ran into huge

coordination problems due to the complexity of manufacturing various components across

different firms headquartered in different countries, with different software systems. The result

was a serious glitch in production that required miles of cables being fed by hand through several

airframes before they ironed out the problems.

It can be argued that taking the first approach (sequential production) reduces the extent of risk

that an organization exposes itself to; if the wing manufacturer hits a problem and is delayed, the

airplane assembly process is not left waiting for resources as it has not yet started. However, the

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apparent minimization of risk in this strategy will result in an increase to the project duration as

the life-cycle is stretched out, and this will adversely affect the productivity of the assembly

organization. Switching to the second approach (concurrent production) increases productivity,

but also places greater emphasis upon relations with organizations outside the assembly

organization's internal environment, and therefore to some extent outside of its control.

Some organizations are deeply worried about the issue of controlling those factors outside of

their internal environments which they see as having possibly adverse effects on their operation.

This is not necessarily paranoia on their part, as the external environment is a rapidly changing

and confusing place to be, as can be shown by a brief consideration of the PEST (sometimes

presented as STEP) model. PEST is an acronym of the grouped factors that are typically seen as

composing an organization's external environment: political, economic, social, technology. As

with all other aspects of systems thinking, each of the PEST factors can be split down into

smaller and smaller sub-factors, and it is at this point that the versatility of the ICE systems

model tempts those of a rational frame of mind into a significant conceit. At the point when a

project manager who is from a background that would be regarded as involving rational thinking,

such as engineers, begins to realize the infinite possibilities of the ICE model, they tend to begin

thinking in terms of developing highly detailed simulations about their organization.

The reasoning goes that, because it is possible to break down systems into smaller and smaller

subsystems, and repeat the process with all the systems that their system interacts with

(component suppliers, energy companies, etc.), they should be able to plan out all the

connections and then simulate what the best response would be to make in any given set of

circumstances. Just think of the competitive edge that an organization would gain from being

able to do that! Alas, it just is not possible. Thinking the scenario through reveals that the sheer

number of connections and the level of interdependency that results from those connections

between all the systems that one organization interfaces with become overwhelming. For

example, think of how many external suppliers (regardless of the product they are supplying)

you can identify on a typical project that you are involved with at present. Now think about the

different materials used by those suppliers individually, and consider how many materials

suppliers your suppliers deal with. Then think about the number of sources of supplies that the

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materials suppliers have to deal with, and just consider the various possibilities on the supply

chain of one change in a single factor such as the political factor (perhaps a health and safety rule

concerning the extraction of a particular raw material?). Now repeat the process, but consider

this time a change in the level of tax applied to the fuel used by the haulage companies who

transport the supplies. At some point, even the best project manager has to accept that they just

cannot know all the answers.

2.6.1 Closed systems

If the project manager cannot, and perhaps should not be expected to know all the answers, what

alternative strategies are available to deal with the problem? Systems thinking offers two

possibilities, which can be summarized in terms of the extremes of a continuum: closed and open

systems.

Closed systems can be simply described as systems that operate entirely without communicating

to other systems outside their own boundary. They are incapable of directly taking anything from

the external environment, in that all their inputs are supplied by other systems within the

organization or project boundary, and they are incapable of responding in a positive manner to

changes in their external environment. Good examples of completely closed systems are

surprisingly difficult to come up with, as there almost always seems to be possibilities for what

may be referred to as leakages between the external and internal environments. A lawn mower

engine is one regularly offered example of a closed system; the argument being that so long as it

has gasoline it will continue to function, irrespective of what the environment external to the

engine may do. However, once it runs out of gas it can do nothing other than stop working.

Unfortunately, there are also other possibilities for negative interaction (the engine ceasing to

function) between the two environments, such as the engine seizing if it overheats when the

temperature of the external environment reaches a certain level.

The important consideration is perhaps not so much that there may be leakages between

environments, but that a closed system is not able to respond to such leakages in a positive

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manner. The engine has no means of either reducing the external temperature or reducing it's

own temperature to compensate. Likewise, the petrol engine has no way of letting users know

that they should not use diesel fuel before they fill up their fuel tank. There is also the possibility

of project managers seeking to ignore the leakages altogether and convince themselves that their

organization or system is absolutely closed, irrespective of what the external environment is

actually doing. Unfortunately, this usually ends in the messy and untimely end of the whole

project, organization, firm, or whatever other title is applied to the system under consideration.

Rather than worry about identifying a truly and completely closed system, the project manager

would perhaps spend the effort involved more profitably by considering ways of responding to

the identified leakages. This leads to the concept of the open system.

2.6.2 Open systems

Somewhere at the opposite end of the continuum to the closed system lies the open system,

which can be defined in terms of a number of characteristics: energy; throughput; output;

homeostasis; entropy / negative entropy; requisite variety; equifinality; and system evolution.

These characteristics will be dealt with in more detail as part of a later Topic, but at this point it

is sufficient to be aware that all organizations are, to some extent, open systems. They take

resources from the external environment, carry out one or more conversion processes, and then

place the completed product in the external environment. This does not mean that such systems

have no boundaries. In fact, it can be argued that an open system possesses more boundaries than

a closed system in that it is actively seeking to interface with all relevant factors in its external

environment. This is particularly so as an organization grows in size.

The organization may seek to operate more in the manner of an open system, and see if there are

other technologies out there in the external environment that it could use to overcome the key

problem with the engine product; it pollutes. A project may be initiated to examine the

possibilities of partnerships with the developers of clean fuels, for example, as one way of

responding to the newly perceived negative aspects of the organization's product. Such a

partnership would involve a range of new interfaces, or boundaries, with the external

environment. In this way the organization seeks to adapt, evolve and survive, and the suggestion

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that the ultimate open system is a living organism perhaps begins to seem less frivolous. This

leads into an initial consideration of what are referred to as postcontingency or transformational

approaches to organizations.

2.7 Memory test 2

Time to check back over a few points before moving on to the next section.

a) What are the two dimensions that define the “complexity” of a firm’s operating environment?

b) What defines a system's internal boundary?

c) What does PEST define and what do the letters stand for?

d) What does the so-called boundary problem refer to?

e) What is the key difference between a closed system and an open one?

f) What type of system can a project organization be regarded as?

2.8 Postcontingency approaches

The systems analysis technique for organization structure development discussed to this point is

an example of what is referred to as the contingency approach to projects, in which the argument

is that there is no single perfect way to organize for all projects; the most appropriate form or

structure for an organization will be dependent upon detailed information concerning the factors

and characteristics of the external environment. The organization then seeks to embed itself

within the external environment, and systems analysis has been, and in the majority still is, seen

as the most effective way of achieving this. However, problems such as the issue of boundaries

between infinite interdependent systems cause concern with regard to defining the extent and

nature of the true project. In essence, the information gathering activity becomes a project in

itself, both prior to initiating the real project and during its lifetime. Any changes in the external

environment during the project duration could require the organization structure to be revised

and this requires a form of organization that is capable of rapid response to change; a feature not

usually equated with contingency approaches. Such problems have caused researchers to

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examine possible alternative approaches to organization design. One possible approach is based

on what is referred to as postcontingency theory.

The basis of postcontingency, or transformational theory, is the questioning of the almost

instinctive attempt by people who sincerely believe that those above them in an organization's

hierarchy know absolutely what is going, to attempt to predict and control organizational

activities and events. Rather, the emphasis moves to encouraging people within an organization

to respond positively to what has been labeled by Banner and Gagne (1995) and others as

sapiential authority; authority based on actual (rather than assumed) knowledge and expertise. In

this way, the theory claims, the realization that the reality of organization is not one which can be

made to conform to any logical, reasoned, systemic way of thinking begins to emerge. Because

of the postcontingency theory's emphasis on regarding organizations as being fluid, and therefore

creative, entities, rather than structures defined in terms of hierarchies and formalization of

power and authority, there is the opportunity to release all the energy previously constrained by

such formalized structures. As one simple example, think of how engineering departments view

the issue of authority. Interviews with engineers in most organizations, across multiple

countries, reveal an interesting response. Ask them who they most respect or who wields the

greatest power within their department and they will typically point to the brightest or most

competent person, NOT the hierarchical boss. For them, authority is sapiential, not based on

rigid hierarchies.

Perhaps the most extreme perspective on organizations (for those who class themselves as

rational-minded thinkers) is that in which organizations are viewed as energy fields. This

suggestion appears to have originated with a consultant by the name of Linda Ackerman, who

derived her approach from a melding of quantum mechanics and Eastern philosophies

(Ackerman, 1984). Within this approach, the key factor is identification with the organization's

purpose by those within it, as the purpose focuses the energy resulting from forces competing

within the organization. The aim is to achieve what is referred to as a flow state wherein all

organization members remain charged with the energy of purpose. This is compared with the

solid state flow, wherein managers aim to control rather than direct competing forces through the

imposition of rules and regulations, claimed to be typical of contingency theory. Again, let’s

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consider an example. Facebook has become the leading social networking mechanism in the

world and has grown exponentially in the past three years. The founder of Facebook, Mark

Zuckerberg, is a 26 year old billionaire who has created an organization with minimal rules,

casual dress codes and working conditions, and a free-wheeling senior management. What binds

them together is a shared enthusiasm for the sheer power of new technologies and the desire to

continue to search for “wow!” opportunities.

Other forms of postcontingency organizations include:

• the metatonic organization, in which barriers within the organization and between it and

the external world are broken down and the culture of the organization is claimed to be

refreshed by the culture of the external world.

• organizations with spirit, in which leadership is seen as being concerned with the

focusing of spirit and the enhancing of its power. This is suggested as being achieved

through managers creating context (the unquestioned assumptions through which all

experience is filtered, the ground of being from which we derive the context of our

reality, and that which determines the way we put things together in our minds)

(Gaffney, 1985).

• organizations which challenge what are referred to as self-limiting beliefs. This is

achieved through managers challenging their own beliefs and assumptions, and

encouraging others to do the same through experimentation and the taking of risks.

Perhaps after having briefly examined some of the postcontingency theory approaches, a radical

suggestion such the second law of thermodynamics having a relevance to project management

(which will be returned to in a later topic) may seem a little less far-fetched! However, it is all

too easy to mock ideas and concepts which do not readily fit with our accepted beliefs about the

ways in which things should be done, and this should not be seen as an acceptable thing to do.

Only by being willing to question the way things are currently done can we hope to find more

effective ways of doing things in the future. Adapt and survive!

2.9 Understanding test 1 Another scenario to work with:

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Assume that you are currently working as a project manager on a new product development

project. The project is to produce a prototype for evaluation with respect to possible future

commercial production (feel free to assume that the project is dealing with whatever “product”

you feel comfortable with). Before getting into the design stage of the project you feel that there

may be benefit to be gained from identifying possible risk areas with regard to relationships

between the project team members.

Using one of the contingency theory approaches, carry out an initial analysis of your project to

identify who are the stakeholders, and whether each stakeholder is to be in the internal or

external environment to the project. Having identified the stakeholders, consider any

interdependent relationships with a view to identifying where competition may be expected to

exist, and define the features of that competition; what are stakeholders competing for / against?

Finally, move on to considering how one of the postcontingency theories may be applied to the

issue of competition in advance of stakeholders actually forming their relationships. Suggest how

you would attempt to prevent creative energy blockages occurring in your project organization.

2.10 Summary

Several new subject areas have been introduced in this topic as the coverage of organization both

widens and deepens. The differences between the ICE and PAC system models, for example,

have been presented as an opportunity for students to think more critically about the ways in

which organizations, at any level, may be designed and developed. However, the systems, or

contingency theory, approaches to organization have been noted as having an important problem

for some researchers and consultants; the boundary problem. This has led to the suggestion of a

postcontingency theory in which organizations attempt to remove barriers, both in the internal

and the external environment, so as to maximize creative energy.

Doubtless some of the ideas put forward in this topic will seem strange, possibly even silly, to

some students; we all have our own individual credulity threshold, and some ideas are bound to

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cross that threshold from time to time. An important factor in developing a greater understanding

of organization is that, rather than worrying about ideas crossing our credulity threshold, effort is

directed at asking why an idea has crossed. What is it that you, as an individual, find

uncomfortable / ridiculous about a particular idea? In doing this there is an opportunity to

question the validity of the threshold, and perhaps discover that it is the threshold, rather than the

idea, which is wrong.

2.11 References

Ackerman, L. (1984) The Flow State: A New View of Organizations and Managing.

Transforming Work, Alexandria, VA. pp 114-137.

Banner, D.K., Gagne, T.E. (1995) Designing Effective Organizations. Sage Publications

Inc. California.

Gaffney, R. (1985) Systems Thinking in Business: Philosophy and Practice; and interview

with Peter Senge. Revision 7, pp 56-57.

2.12 Directed Readings

Please read the Van Der Merwe (2002) and Cooke-Davies et al (2009) articles from the lesson.