Systems Theory Leadership Why Understanding

Systems Theory Leadership Why understanding systems theory is valuable for leaders Why understanding systems theory is valuable for leaders Once upon a time, the 'great man' theory of leadership prevailed. This theory suggested that organizational leadership and success was determined by the character of the person in charge. However, with the increased bureaucratization of human life, including corporate enterprise, a new model was needed in the 20th and later the 21st century.

Systems theory, also called contingency theory, developed to explain how different parts of organizations and the wider market environment functioned in dialogue with one another. "A system is a collection of parts unified to accomplish an overall goal. If one part of the system is removed, the nature of the system is changed as well. For example, 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've no longer got a working car. A system can be looked at as having inputs, processes, outputs and outcomes. Systems share feedback among each of these four aspects of the systems" (McNamara 1997). A canny manger is useless unless he or she can make workers wish to obey his dictates, a strong product means little if it is priced out of the range of the target segment of consumers.

No aspect of organizations or markets can be understood in isolation Systems theory has defined much of modern managerial philosophy, even though corporate actions have not always perfectly adhered to the theory. Its degree of influence demands that a manger must understand its principles: whenever a manager embarks upon market research, or reevaluates the supply chain, he or she is using systems theory. The theory suggests that leaders must use sensory, objective data to monitor their environment, not just gut instincts.

Business cannot be guided by a single person's ideas -- empirical information must be converted into standard operating procedures independent of individual whims (Kurtyka 2005). Systems theory also emphasizes the need to detect deviations from the norm: the philosophy of Six Sigma or continuous improvement thus has its roots in systems theory (Continuous improvement, 2006, 2009). One must "initiate corrective actions when deviations exceed some preset level" (Kurtyka 2005). Process improvement is essential. It is not enough to meet benchmarks; a leader must enable the entire organization to improve in a synergistic fashion.

It is also not enough to 'strike it big' with one large project success: an organization must ensure that its 'system' is functional and that a single incident of success is not a fluke. This is one reason for the success of Toyota, an industry leader that has pushed itself to eliminate defects and engage in continual improvement of processes and products, even when things are going well. Systems theory also enables a leader to locate his or her organization within the system of a larger social environment.

Porter's Five Forces analysis underlies systems theory. Porter analyzes supplier power, buyer power, competitive rivalries, threat of substitutions for a product, and threats of new entry, to determine market strategy (Porter's five forces, 2008, Mind Tools). A company cannot focus on its internal workings alone: it must acknowledge the larger system in which it operates. A pricing strategy that emphasizes low costs, for example, might run into problems if supplier power enables oil producers to raise the price of.