Social systems theory for management practitioners: Organizations as network of decisions

The classical machine metaphor in management is outdated.

The prevailing understanding of organizations in management is still based on a machine metaphor. As a consequence, most business schools and consultancies still teach management practitioners to lead organizations following a linear cause-and-effect approach. This traditional understanding of management is easy to understand and gives management practitioners a sense of control over their organizations. However, recent insights from organizational science and sociology reveal that relying only on this machine metaphor of organizations is no longer sufficient, as the following examples show.

Complexity leadership

In leadership, critical voices start to question whether traditional leadership approaches such as transactional and transformational leadership are too static to cope with the requirements of the 21st- century knowledge economy. Alternative leadership approaches such as complexity leadership that rely on the understanding of organizations as complex systems get traction.

Strategy as Practice

Strategic management has started to acknowledge the relevance of strategizing as a (communication) process which takes place not just in board rooms but also in lunch breaks, customer meetings and informal employee gatherings. This “practice turn” has created a completely new strategic management field called Strategy as Practice, which abandons the traditional top-down strategy formulation approach.

Language and change

Recent insights from organizational science emphasize the relevance language plays in managing change. The basic assumption behind this understanding of organizational change is that language shapes social reality and that shaping social reality is a key factor in managing change. This understanding is in stark contrast to traditional change management models which usually describe the change process as a linear sequence of steps management practitioners have to lead their organization through. 

Social systems theory assumes that organizations consist of decision communication.

The German social theorist Niklas Luhmann (1927-1998) argued that organizations consist of decision communication. Organizations, including business firms, produce decisions from decisions, which makes them operationally closed social systems (Luhmann, 2013a, p. 143). Organizations, in this view, consist not of human decision-makers but communication--in this case, decision communication. We might also say that organizations exist in order to facilitate the communication of decisions. The decision-makers are said to reside in the organization’s environment. While human beings, at least for now, are a necessary precondition of organizations, the organizations themselves, as social systems, consist only of decision communications. A decision that relates to subsequent decisions can live on and influence an organization long after the decision-maker has left the organization.

Social systems theory is all about distinctions.

Social systems theory takes seriously the statement of mathematician George Spencer-Brown (1969) that in order to observe, think, or talk about anything we must first “draw a distinction.” Social systems theory, then, is all about distinctions, and the first or most important distinction drawn is between system and environment. This view allows us to see AI technologies, such as IBM’s Watson, as a decision-makers on the same level as human decision-makers. If human beings and Watson both exist in the environment of an organization, the human/AI distinction is a distinction without a difference.

In contrast, we often think with the aid of the whole/part distinction, which is a distinction social systems theory is not interested in. But if we take the non-Luhmannian route and start with the premise that an organization is a whole that consists of parts, with the parts being members of the organization or perhaps roles to be filled, then we need to ask how an organization emerges and how it survives from day to day. The typical answer is that societies as well as organizations are held together by norms (or behavioral expectations) and shared values, as expressed in the ubiquitous vision statement. In addition to norms and values, most organizations have a division of labor that establishes interdependence. An organization may also have a history that is told and retold to foster an organizational identity.

Decisions are communicative events and constitute an organization.

But if we instead begin with the premise that an organization exists in order to facilitate the communication of decisions, then we proceed in a different direction. For instance, rather than trying to understand how norms, values, a common vision, and a division or labor hold an organization together, we will ask how organizations make decisions—that is to say, how organizations produce and reproduce themselves from moment to moment. In social systems theory, a single decision is a communicative event, and events have no duration; they vanish the same the moment they are formed. Thus, in order for an organization to emerge and persist, each new decision must be connected (or connectable) to previous decisions (system memory) and also enable subsequent decisions. If an organization consists of decisions and only decisions, then all that is necessary to reproduce the organization from moment to moment, day to day, and year to year are decisions. It’s important to note that social systems theory does not ask how decisions are made by individuals or what happens in the mind of a decision-maker; this would be a task for psychology or cognitive science. What social systems theory is interested in is decision communication, or the type of communication that produces decisions.

Individuals are not the organization itself according to social systems theory.

Upon encountering this theory, the first objection is usually that there cannot be an organization or a society, even an ant or elephant society, without living individuals. Individual living beings, according to this view, are the parts that make of the whole that we call an organization. In this view, an organization must consist of people—and not just people in the form of a crowd, but people who are committed to a common purpose. For the systems theorist, the response to this line of reasoning is that, yes, of course, people are necessary for the existence of an organization. We cannot have a human organization without people. Yet, as stated above, the people are only a necessary precondition for the organization’s existence. They are not the organization itself; nor typically are they the only necessary precondition.

Spoken or written words remain in a communication system.

To flesh out this argument, we can say that communication depends on consciousness—at least two awake, attentive minds—and these minds depend on brains with adequate cerebral blood flow; yet when we talk to each other we don’t exchange brains, and pages of written text are not covered in cerebral blood. When it comes to writing, adequate cerebral blood flow is a precondition for an author to sit upright at a desk and write something; however, as Luhmann nicely puts it, “An editor would reject an essay that came in a flood of blood” (2013b, p. 191). So, at least two functioning brains are a necessary precondition for communication, but at the same time these brains with their blood are absolutely excluded from communication. To put this another way, as soon as an utterance has been made and understood by someone, even if “misunderstood,” the speaker has completely lost control over the information. Spoken or written words can remain in a communication system long after the original speaker or writer leaves the scene, as long as the words are repeated or referenced in further communication. If we need another analogy, a law remains relevant as long as it is referenced in legal communication.

Material infrastructure are not parts of the organization.

Another common criticism of social systems theory is that it does not take individual human beings seriously. But, arguably, the only way to take the individual seriously is to exclude the individual from all social systems. At a minimum, two people are required for a social system to emerge. Starting with a two-person communication system, or interaction system (Luhmann, 2013a), may be the only way to treat social systems seriously--that is, as more than an aggregate of individuals. Far from devaluing particular human beings, people gain a sense of freedom by not being considered parts of an organization. A machine component has no real purpose outside of a machine. But people are not machine components, and organizations are not machines.

 People, as well as, in most cases, various forms of material infrastructure, are needed to keep an organization functioning, but the individual people and the elements of the infrastructure come and go while the organization, if it remains an organization, persists. The roads, bridges, fiber optic cables, electrical grids, airports, etc., that exist outside an office building (and the office building itself) may well be necessary preconditions for the continued functioning of a particular organization, but those pieces of material infrastructure are not parts of the organization for the simple reason that the organization is not composed of parts.

Furthermore, most organizations consist of higher paid “decision-makers” and those who perform valued tasks but do not contribute to organizational decisions. Adopting the traditional, non-systems-theoretical view, the decision makers are more important than the “non-decision-makers.” But if neither group is actually included in the organization—both remain in the system’s environment—our view changes. The CEO, CFO, or any other decision-makers are among the preconditions for decisions, but the organization is the decisions. The high-level decision-makers do not constitute the organization any more than the people who clean the offices at night.

References and further readings

Luhmann, Niklas, and Barrett Rhodes. Theory of Society, Volume 2. Cultural Memory in the Present. Stanford, Calif.: Stanford University Press, 2013a.

Luhmann, Niklas, Introduction to Systems Theory. Polity, 2013b.