Today’s organizations seem to change much more rapidly than in the past. Consequently, many experts have strong reservations about the numerous measurements that must be taken in performance management. They assert that no sooner is a measurement identified than the measurement becomes obsolete because the organization has changed substantially.
There are numerous measurements to consider when adopting a performance management system. However, the measurements themselves are not the major purpose of the performance management process. The purpose of the process is to provide a consistent frame of reference during ongoing feedback about performance, whether the organization is entirely stable or in the midst of rapid change.
Measurements ensure that everyone involved is working and talking from the same script. The measurements themselves may change. However, organization members should be able to recognize and explain the change. This assertion is true whether one is addressing the performance of an organization, process, subsystem or employee.
Consider the implications of the above assertion. The assertion is saying, e.g., that when performance management is carried out with an employee, filling out the performance form and having the performance discussion is not the highlight of the performance process — the highlight has been occurring during the year when the supervisor and employee exchanged ongoing feedback about performance.
Filling out the form and having the discussion are really measurements, too. If the performance process is done well, the performance review discussion should include absolutely no surprises for the employee. All feedback to him or her already should have occurred.
Frankly, many supervisors dread having to fill out the employee performance review forms. That is the time means they have to recount the employee’s activities during the year, try translate the activities to areas of knowledge and skills shown by the employee — they have to “reverse engineer” what’s been happening, mostly to fill out a form. They worry that they haven’t spent sufficient time noticing the employee’s behavior, that they might be confronted and proven wrong. They often believe that the employee has been doing just fine during the year, so why have to quit work now just to fill out a form. They worry that the employee may have high expectations that can’t be met by the performance process. That’s how many supervisors see the process – because the form and the various measurements that it recalls, are too often seen as the end in themselves.
The most important part of the performance management process is the ongoing communication around the measurements.
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Remember that information in this section is generic to performance management,
that is, the information generally applies to any domain of performance management,
including an organization, an internal and recurring process, a team or an employee.
The development planning phase generally occurs after the Performance
Appraisal phase. Keep in mind that the three phases (performance planning,
performance appraisal and development planning) are all cyclical and highly integrated in nature. As in our descriptions of the performance planning and performance
appraisal phases, we will continue with our example of the machine operator.
So at this point in our example, a performance plan and the performance appraisal
activities have already been conducted for the operator.
13. If performance does not meet desired performance standards, develop
or update a performance development plan to address the performance gap*
(See Notes 1 and 2 below.)
If performance does not meet standards, implement a performance development
plan. This plan clearly conveys how the conclusion was made that there
was inadequate performance, what actions are to be taken and by whom and when,
when performance will be reviewed again and how. In our example, if the operator
(or other domain) was not performing to standards, then some forms of help (or
interventions) should be provided (in this example, coaching, mentoring, training,
more resources, etc).
In a progressive
approach, performance development can occur in real time, that is, the
supervisor and operator would address performance issues as soon as they occur.
The supervisor and operator would collaborate to decide what improvements
are needed and how they might be implemented. Their decisions and any documentation
would include any decisions about additional trainings that might be needed
and how they could advance the operator’s career.
* Note 1: Inadequate performance does not always indicate a
problem on the part of the domain. Performance standards may be
unrealistic or the domain may have insufficient resources. Similarly,
the overall strategies or the organization, or its means to achieving
its top-level goals, may be unrealistic or without sufficient
resources.
* Note 2: When performance management is applied to an employee
or group of employees, a development plan can be initiated in
a variety of situations, e.g.,:
a.) When a performance appraisal indicates performance improvement
is needed
b.) To “benchmark” the status of improvement so far
in a development effort
c.) As part of a professional development for the employee or
group of employees, in which case there is not a performance gap
as much as an “growth gap”
d.) As part of succession planning to help an employee be eligible
for a planned change in role in the organization, in which case
there also is not a performance gap as much as an “opportunity
gap”
e.) To “pilot”, or test, the operation of a new performance
management system
14. Repeat steps 9 to 13 until performance is acceptable, standards are
changed, the domain is replaced, management decides to do nothing, etc.
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Every organization has a set of overall preferred results that it wants to accomplish. The results might be implied to its members or explicitly conveyed to them. That is true, whether the organization is large or small. It is true for any of the parts of the organization that are working toward their own results, for example, a department, program, team or an individual in the organization. Each of these has a recurring set of activities — a system — aimed toward achieving its desired results
In the context of performance management, the term “performance” means continually achieving the preferred results in a manner that is as effective and efficient as possible. Performance management reminds us that being busy is not the same as producing results. It reminds us that training, strong commitment and lots of hard work alone are not results.
To sustain strong performance, all of the parts of the system must be closely integrated and aligned toward actively achieving the desired results. Only then can it be said that it is highly performing.
Here’s a story that further explains what “performance” really is — in this case, in an organization.
So Performance Management Applies to More than Employees
Typically, we think of performance in organizations, we think of the performance of employees. However, performance management should also be focused on:
1. The organization
2. Each of its departments (computer support, administration, sales, etc.)
3. Each of its recurring processes (billing, budgeting, product development, financial management, etc.)
4. Each of its programs (implementing new policies and procedures to ensure a safe workplace; or, for a nonprofit, ongoing delivery of services to a community)
5. Each of its products or services to internal or external customers
6. Each of its projects (automating the billing process, moving to a new building, etc.)
7. Each of its teams or groups organized to accomplish a result for internal or external customers
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1. PM focuses on results, rather than behaviors and activities
A common misconception among supervisors is that behaviors and activities are the same as results. Thus, an employee may appear extremely busy, but not be contributing at all toward the goals of the organization. An example is the employee who manually reviews completion of every form and procedure, rather than supporting automation of the review. The supervisor may conclude the employee is very committed to the organization and works very hard, thus, deserving a very high performance rating.
2. Aligns organizational activities and processes to the goals of the organization
PM identifies organizational goals, results needed to achieve those goals, measures of effectiveness or efficiency (outcomes) toward the goals, and means (drivers) to achieve the goals. This chain of measurements is examined to ensure alignment with overall results of the organization.
3. Cultivates a system-wide, long-term view of the organization.
Richard A. Swanson, in Performance Improvement Theory and Practice (Advances in Developing Human Resources, 1, 1999), explains an effective performance improvement process must follow a systems-based approach while looking at outcomes and drivers. Otherwise, the effort produces a flawed picture. For example, laying off people will likely produce short-term profits. However, the organization may eventually experience reduced productivity, resulting in long-term profit loss.
4. Produces meaningful measurements
These measurements have a wide variety of useful applications. They are useful in benchmarking, or setting standards for comparison with best practices in other organizations. They provide consistent basis for comparison during internal change efforts. They indicate results during improvement efforts, such as employee training, management development, quality programs, etc. They help ensure equitable and fair treatment to employees based on performance.
15 Other Benefits of Performance Management
Performance Management (PM):
1. Helps you think about what results you really want. You’re forced to be accountable, to “put a stake in the ground”.
2. Depersonalizes issues. Supervisor’s focus on behaviors and results, rather than personalities.
3. Validates expectations. In today’s age of high expectations when organizations are striving to transform themselves and society, having measurable results can verify whether grand visions are realistic or not.
4. Helps ensure equitable treatment of employees because appraisals are based on results.
5. Optimizes operations in the organization because goals and results are more closely aligned.
6. Cultivates a change in perspective from activities to results.
7. Performance reviews are focused on contributions to the organizational goals, e.g., forms include the question “What organizational goal were contributed to and how?”
8. Supports ongoing communication, feedback and dialogue about organizational goals. Also supports communication between employee and supervisor.
9. Performance is seen as an ongoing process, rather than a one-time, snap-shot event.
10. Provokes focus on the needs of customers, whether internal or external.
11. Cultivates a systems perspective, that is, focus on the relationships and exchanges between subsystems, e.g., departments, processes, teams and employees. Accordingly, personnel focus on patterns and themes in the organization, rather than specific events.
12. Continuing focus and analysis on results helps to correct several myths, e.g., “learning means results”, “job satisfaction produces productivity”, etc.
13. Produces specificity in commitments and resources.
14. Provides specificity for comparisons, direction and planning.
15. Redirects attention from bottom-up approaches (e.g., doing job descriptions, performance reviews, etc., first and then “rolling up” results to the top of the organization) to top-down approaches (e.g., ensuring all subsystem goals and results are aligned first with the organization’s overall goals and results).
Concerns About Performance Management
Typical concerns expressed about performance management are that it seems extraordinarily difficult and often unreliable to measure phenomena as complex as performance. People point out that today’s organizations are rapidly changing, thus results and measures quickly become obsolete. They add that translating human desires and interactions to measurements is impersonal and even heavy handed.
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Remember that information in this section is generic to performance management,
that is, the information generally applies to any domain of performance management,
including an organization, an internal and recurring process, a team or an employee.
The performance appraisal phase generally occurs after the Performance
Planning phase. Keep in mind that the three phases (performance planning,
performance appraisal and development planning) are all cyclical and highly integrated in nature. As in our description of performance planning, we will continue with
our example of the machine operator. So at this point in our example, a performance
plan has already been developed for the operator.
9. Conduct ongoing observations and measurements to track performance
The operator’s supervisor would observe the number of high-quality prints, including
to share feedback with the operator’s internal customer, the Director of the
Catalog Department.
In a progressive
approach, this would also occur, as the sharing of feedback with customers
is extremely important.
10. Exchange ongoing feedback about performance
Feedback is information relevant to how well results are being achieved. Useful
feedback is timely, feasible and understood. Ideally, feedback address key activities
to improve or reinforce performance. Usually, the larger the number of sources
giving feedback, the more accurate is the depiction of events. In our example,
the employee, supervisor and Director of the Catalog Department should continue
to share impressions of how well results are being achieved. Any ideas to improve
or support performance should be implemented as appropriate. This ongoing
feedback is often one of the most important aspects of performance management.
In a progressive
approach, this would also occur, as the sharing of feedback with the domain
(in our example, the operator) is extremely important.
11. Conduct a performance appraisal (sometimes called performance review)
A performance appraisal (or review) includes documentation of
expected results, standards of performance, progress toward achieving of results,
how well they were achieved, examples indicating achievement, suggestions to
improve performance and how those suggestions can be followed. If the above
activities in the performance management process were followed, the performance
appraisal is usually quite straightforward to carry out. In our example, the
appraisal should include input from the employee, supervisor and Director of
the Catalog Department. The performance appraisal should be carried out at regular
intervals as performance tracking is underway.
In a progressive
approach, performance review documentation and meetings would occur more
than once a year in order to remain relevant to any changes in the organization’s,
the customers and/or the operator’s goals. The review would not include any
surprises for the operator, as any concerns about performance would have been
addressed as soon as they occurred.
12. If performance meets desired performance standards, reward for performance
In our example, the machine operator may be due some form of reward, that is,
recognition or compensation, for example, a letter of recognition, promotion
or letter of commendation.
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Teams, Processes and Organizations
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Employee benefits typically refers to retirement plans, health life insurance, life insurance, disability insurance, vacation, employee stock ownership plans, etc. Benefits are increasingly expensive for businesses to provide to employees, so the range and options of benefits are changing rapidly to include, for example, flexible benefit plans.
Benefits are forms of value, other than payment, that are provided to the employee in return for their contribution to the organization, that is, for doing their job. Some benefits, such as unemployment and worker’s compensation, are federally required. (Worker’s compensation is really a worker’s right, rather than a benefit.)
Prominent examples of benefits are insurance (medical, life, dental, disability, unemployment and worker’s compensation), vacation pay, holiday pay, and maternity leave, contribution to retirement (pension pay), profit sharing, stock options, and bonuses. (Some people would consider profit sharing, stock options and bonuses as forms of compensation.)
You might think of benefits as being tangible or intangible. The benefits listed previously are tangible benefits. Intangible benefits are less direct, for example, appreciation from a boss, likelihood for promotion, nice office, etc. People sometimes talk of fringe benefits, usually referring to tangible benefits, but sometimes meaning both kinds of benefits.
You might also think of benefits as company-paid and employee-paid. While the company usually pays for most types of benefits (holiday pay, vacation pay, etc.), some benefits, such as medical insurance, are often paid, at least in part, by employees because of the high costs of medical insurance.
Planning an Employee Benefits Program (Various Perspectives)
Compensation includes topics in regard to wage and/or salary programs and structures, for example, salary ranges for job descriptions, merit-based programs, bonus-based programs, commission-based programs, etc. (Also see the Related Info (including Benefits))
Compensation is payment to an employee in return for their contribution to the organization, that is, for doing their job. The most common forms of compensation are wages, salaries and tips.
Compensation is usually provided as base pay and/or variable pay. Base pay is based on the role in the organization and the market for the expertise required to conduct that role. Variable pay is based on the performance of the person in that role, for example, for how well that person achieved his or her goals
for the year. Incentive plans, for example, bonus plans, are a form of variable pay. (Some people might consider bonuses as a benefit, rather than a form of compensation.) Some programs include a base pay and a variable pay.
Organizations usually associate compensation/pay ranges with job descriptions in the organization. The ranges include the minimum and the maximum amount of money that can be earned per year in that role.
Employees have certain monies withheld from their payroll checks, usually including federal income tax, state income tax, FICA (social security) contributions, and employee contributions to the costs of certain benefits (often medical insurance and retirement).
Exempt and Non-Exempt
Jobs in organizations have two classifications, exempt and non-exempt.
Professional, management and other types of skilled jobs are classified as exempt. Exempt jobs get a salary, that is, a fixed amount of money per time interval, usually a fixed amount per month. It’s not uncommon for exempt positions to receive higher compensation and benefits than non-exempt jobs, although non-exempt jobs often can make more money than exempt jobs simply by working more hours.
Unskilled or entry-level jobs are usually classified as non-exempt. Non-exempt jobs usually get a wage, or an amount of money per hour. Non-exempt jobs also get paid over-time, that is, extra pay for hours worked over 40 hours a week or on certain days of the week or on holidays.
Each job must have the same pay range for anyone performing that job, that is, one person can’t have a higher maximum pay than someone else doing that same job.
It is extremely useful to reference salary surveys when determining salaries. The surveys lend tremendous credibility and fairness to the process of determining compensation. Be sure that surveys are somewhat current. Reference them to find the salaries for the job roles that are the closest match to the roles you are deciding the compensation for. The closer you can match the role to the type of services, locale and job title of the role you are deciding compensation for, the more useful the survey is likely to be to you, especially if the survey was generated in the past five years or less.
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Management Function of Organizing: Overview of Methods
Assembled by Carter McNamara, MBA,
PhD
This topis is in regard to the management function of organizing resources.
Organizing can be viewed as the activities to collect and configure resources
in order to implement plans in a highly effective and efficient fashion. Organizing
is a broad set of activities, and often considered one of the major functions
of management. Therefore, there are a wide variety of topics in organizing.
The following are some of the major types of organizing required in a business
organization.
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Factors That Determine an Organization’s Uniqueness
The following list includes some major considerations for you to address when attempting to identify the unique aspects of an organization. The factors are all highly related to, and influenced by, each other.
Culture of the Organization
You work differently with an organization, depending on the organization’s culture. An organization’s culture is similar to its overall “personality.” For example, some organizations operate in a highly “business-like” fashion with extensive formality of rules. Other organizations pride themselves on operating in a highly informal, relaxed fashion.
Style of the Top Leadership
There is a variety of leadership styles, ranging from highly involved to detached. Autocratic leadership means decisions are made from the top down, and often based on the personality of the top leaders. In contrast, participative leaders aim to involve as many people in decisions as is practical and decisions are often made by consensus.
Life Cycle of the Organization
The particular life cycle of an organization can make a big difference in how change should be carried out because organizations often operate differently during different life cycle stages. For example, the nature of their planning, policies and procedures can change substantially between stages.
Size of the Organization
The larger the organization, the sometimes more complex the nature of its issues and the more complex the actions needed to address those issues. Size is in terms of the number of divisions, products and services, and personnel because those features are most often associated with specific organizational issues.
Strategies and Structures of the Organization
In this context, strategies refer to the overall approaches used by the organization to effectively meet the needs of its stakeholders. Those approaches include how the organization identifies the needs and then works to meet them. The structures are the result of the organization’s overall strategies and include, for example, organizational design, policies, plans, procedures and roles.
Rate of Change in the External Environment
Certain types of organizations are in the midst of tremendous change, for example, technologies, health care and transportation. Often, the faster the rate of change in the external environment, the more rapid are the decisions and actions in the internal environment.
So Are Nonprofits and For-Profits Really Very Different?
Notice that none of the above factors is directly in regard to the nature of the products and services provided by the organization. There is often a misunderstanding that products and services make a big difference. Usually, they do not.
For example, many people assert that there is a big difference between nonprofits and for-profits. However, they often are comparing small, start-up nonprofits in their first life cycle with large, established for-profits in a mature life cycle. Instead, small nonprofits are much more like small for-profits than large nonprofits. Similarly, large nonprofits are much more like large for-profits than small nonprofits.
For example, notice the model of life cycles at https://staging.management.org/organizations/life-cycles.htm#example. Then think about small nonprofits and for-profits and about how similar their features often are during the start-up phase.
Others assert that nonprofits are different because they are much more diverse. However, for-profits are increasingly diverse, as well, as the work force becomes increasingly diverse.
Others assert that nonprofits are unique in that they do fundraising. However, for-profits are constantly focused on potential sources of funding and many regularly borrow money from different sources, especially if it ultimately would be profitable to do so.
Others assert that nonprofits are unique because they have volunteer and (usually) unpaid Board members. However, the legal requirements and best practices between nonprofit and for-profit corporations are very similar in the operations of the Boards of Directors.
This Article is in a Series About Understanding Organizational Structures and Design
This article is the second in the series which includes:
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NOTE: Many people would argue that a nonprofit organization is also a business organization, if they believe that a business is an organization that provides value to consumers and gets suitable value in return.
For-Profit (Business) Organizations
A for-profit organization exists primarily to generate a profit, that is, to take in more money than it spends. The owners can decide to keep all the profit themselves, or they can spend some or all of it on the business itself. Or, they may decide to share some of it with employees through the use of various types of compensation plans, e.g., employee profit sharing.
(We’ll read later about the legal forms of a for-profit, including sole proprietorships, partnerships and corporations. More information is available back in the main category Understanding Organizations.
Nonprofit Organizations
(The following information, in large part, was developed by Putnam Barber, President of the Evergreen State Society in Seattle, Washington)
A nonprofit organization exists to provide a particular service to the community. The word “nonprofit” refers to a type of business — one which is organized under rules that forbid the distribution of profits to owners. “Profit” in this context is a relatively technical accounting term, related to but not identical with the notion of a surplus of revenues over expenditures.
Most nonprofits businesses are organized into corporations. Most corporations are formed under the corporations laws of a particular state. Every state has provisions for forming nonprofit corporations; some permit other forms, such as unincorporated associations, trusts, etc., which may operate as nonprofit businesses on slightly (but sometimes importantly) different terms.
The Internal Revenue Service (IRS) gets involved because corporations are, in general, required to pay federal corporate income taxes on their net earning (another technical term, pointing to a slightly different way to the idea of a surplus of revenue over expenses).
Section 501 of the Internal Revenue Code lists several circumstances under which corporations are exempt from these taxes. Section 501(c)(3) — the famous one — describes corporations (1) serving charitable, religious, scientific or educational purposes (2) no part of the income of which “inures to the benefit of” anyone.
Tax-exempt nonprofit corporations can, and do, operate in all other particulars like any other sort of business. They have bank accounts; own productive assets of all kinds; receive income from sales and other forms of activity, including donations and grants if they are successful at finding that sort of support; make and hold passive investments; employ staff; enter into contracts of all sorts; etc.
There are some specialized tax rules and accounting practices that apply to nonprofit corporations. If they are of a certain size, they are required to disclose many details of their operations to the general public and to state regulators and watchdog agencies using IRS form 990. This form shows any salaries paid to officers or directors and to the five highest-paid employees and contracts if any receive over $50,000 in the tax year (at the time of this writing in 1998). The form also requires the organization to divide its expenses into “functional categories” — program, administration and fund-raising — and report the totals for each along with the amounts expended on each program activity.
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Recently, management studies has come to view organizations from a new perspective: a systems perspective. This systems perspective may seem quite basic. Yet, decades of management training and practices in the workplace have not followed from this perspective.
Only recently, with tremendous changes facing organizations and how they operate, have educators and managers come to face this new way of looking at things. This interpretation has brought about a significant change (or paradigm shift) in the way management studies and approaches organizations.
First, What is a System?
Despite the complexity of organizations as explained in the topic What is an Organization?, it helps a great deal to think of organizations as systems. When reading the following paragraphs about systems, think of an organization that you know — or even about other systems, such as automobiles or plants.
Simply put, a system is an organized collection of parts that are highly integrated in order to accomplish an overall goal or outcome. The system has various inputs which are processed to produce certain outputs, that together, accomplish the overall goal desired by the system. There is ongoing feedback among these various parts to ensure they remain aligned to accomplish the overall goal.
For example, in an organization, the inputs might be funding, people, facilities and technologies. (For an actual organization, the list of inputs would be much longer and more specific.) Processes would be, for example, using the money to train people, developing and marketing products and services, and measuring customer satisfaction. Outputs would be the, for example, the number of products and services that were sold. The overall goals, our desired outcome, would be highly satisfied customers sufficient that they pay a suitable price and the organization remains financially viable.
A pile of sand is not a system. If one removes a sand particle, you’ve still got a pile of sand. However, a functioning car is a system. Remove the carburetor and you no longer have a working car.
Systems range from very simple to very complex. There are numerous types of systems. For example, there are biological systems (for example, the heart), mechanical systems (an automobile), human/mechanical systems (riding a bicycle), ecological systems (predators and prey) and social systems (departments and groups).
There are a variety of tools to depict the inputs, processes, outputs and outcomes in systems, as well as the recurring cycle (or loops) of activities within them. One of the most straightforward to use is a logic model. The model can be very useful when planning or analyzing a system. It can also be very useful for describing the system to others. Here is an example of a logic model for an educational program, which is itself a system as depicted in the logic model.
Inputs
Processes
Outputs
Free articles and other publications on the Web
– Collaborators
– Free Management Library
– Funders
– Self-directed learners
– Volunteers
– Computers
– Web
– Supplies
– Provide peer-assistance models in which learners support each other
– Provide free, online training program: Basics of Self-Directed Learning
– Provide free, online training program: Basic Life Skills
– Provide free, online training program: Passing your GED Exam
– 30 groups that used peer models
– 100 completed training programs
– 900 learners who finished Basics of Self-Directed Learning
– 900 learners who finished Basic Life Skills
– 900 learners who passed their GED to gain high-school diploma
The next columns in a logic model are the outcomes that the outputs go into and produce.
Short-term outcome(s)
(new knowledge)
Intermediate outcomes
(new skills)
Long-term outcomes
(new abilities and perceptions)
– High-school diploma for graduates
– Increased interest to attend advanced schooling
– Increased confidence that learner can manage formal learning programs
– Full-time employment for learners in jobs that require high-school education
– Independent living for learners from using salary to rent housing
– Strong basic life skills for learners
– Improved attitude toward self and society for graduates
– Improved family life for families of graduates
– Increased reliability and improved judgment of learners
In the above example, the educational program is continually get feedback from people in the program as well as the students who participate in it. The feedback is used especially to improve the quality of the inputs and the processes in the system. Thus, there is a recurring loop of activities in the system.
These articles can explain more about logic models and systems tools.
Any system that does not have continual and useful feedback shared among its various subsystems will likely produce low-quality outcomes or will fail altogether. That is true for all systems, including social systems like organizations and mechanical systems like automobiles.
In an organization, feedback should continually be collected and evaluated from those it serves, but also between the various parts of the organization. If a certain team in an organization is not getting sufficient feedback from its supervisors, then the team will not optimally perform.
If the supervisors are not getting sufficient feedback from executives, then supervisors will not perform well either. This is why internal communications are critical to the success of any organization.
Many leaders and managers intuitively know those connections and the importance of communications. However, that understanding is made much more clear and important when they can see that the communications are, in essence, the “life’s blood” of the system. That is why significant change in organizations always requires ongoing communications in the organization from the top down and from
the bottom up. See Organizational Communications
So Why is it Important to Look at Organizations as Systems?
In the past, when an organization was struggling, managers typically focused on fixing one part. For example, when there were continual shortages of money, then they worked to get more money. Soon, they realized that they were still running out of money because they still were spending too much and perhaps not earning enough. So they would cut costs, while doing more marketing in order to get more revenue.
Then they would realize that they were not getting more customers because customers were reporting that the quality of their products and services was very poor. So then the mangers would attend to improving quality. Then the managers might realize that they could not improve quality without getting more internal expertise, which requires yet more money. That, in turn, requires he top executives to really believe that more money is really going to make a difference -t his time.
Today’s managers have learned to have a systems perspective. They work to improve their organizations, not by examining what appear to be separate pieces of the organization, but by recognizing the larger patterns in interactions.
Closed Systems Fail — Open Systems Flourish
What is a Closed System?
Any organization has to regularly exchange useful feedback among its own parts if it is to thrive. However, an organization can do that and still fail if it does not exchange that kind of feedback with its customers — people who are outside of the organization.
An organization that does not exchange feedback with its immediate outside environment is called a closed system. You might be able to think of some examples of organizations that quit listening to the opinions of those outside of it and, as a result, their products and services continued to be lower quality.
Or, you might be able to think of organizations that, while they continued to have high-quality products and services, their organization was perceived as operating in a highly unethical manner. Yet, the organization ignored the opinions of those outside stakeholders and eventually the organization’s sales and profit suffered.
What is an Open System?
So an open organizational system is one that regularly exchanges useful feedback with all of its important external stakeholders, for example, its customers, collaborators, leaders in the community and researchers in the industry.
Those kinds of communications often requires careful planning, implementation and monitoring. Inexperienced or unwise leaders and managers might see that effort as a distraction from focusing on their own visions and ideas. While that will seem passionate and productive for a while, it soon will fail. An
example of this situation if what some people refer to as Founder’s Syndrome where an organization is operating more to the personality of someone in the organization than to its mission to serve others. See Founder’s Syndrome.
Description of Various Subsystems — You Will Recognize Them
There are numerous examples of subsystems in organizations. Think of any recurring processes, such as the management functions of strategic planning, marketing and financial management.
For example, the inputs to financial management might be the budget plans from other departments.
The processes in financial management might be continually monitoring the income and expenses occurred during operations.
The outputs might be financial reports to management. (In that situation, management is really an internal customer to the Finance Department.)
The reports help achieve the goal of continually informed managers who, in turn, make wise decisions in the organization.
Management’s decisions might affect the budgets of the various departments.
Those budgets change the inputs to the financial management system.
Similarly,
The outputs of the recurring strategic planning process are inputs to the recurring program or product planning processes.
The outputs of the program and product planning processes are inputs to the financial planning process.
The outputs of that process are the inputs to the fundraising process (in the case of nonprofits).
How You Can Integrate and Depict Relationships Between Subsystems
That loop, or system, of activities continues as long as the organization is in operation. Similar loops occur in each of the major functions in an organization. Here are depictions of some common subsystems in an organization. Examples of Systems View of Management Functions
You can use logic models to show the integration and alignment of various subsystems in an organization by “chaining” the logic models. See How to Chain Logic Models
Here is a template for a logic model. You might think of a system in your work or personal life and diagram the system in the template.
Learn More in the Library’s Blogs Related to Organizations
In addition to the information on this current page, see the following blogs which have posts related to organizations. Scan down the blog’s page to see various posts. Also see the section “Recent Blog Posts” in the sidebar of the blog or click on “next” near the bottom of a post in the blog.
To round out your knowledge of this Library topic, you may want to review some related topics, available from the link below. Each of the related topics includes free, online resources.
Also, scan the Recommended Books listed below. They have been selected for their relevance and highly practical nature.
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