SATM 6.2.1 Barnard's Systems Thinking

Barnard produced in 1938 an early systems account of the nature of organizations, called The Functions of the Executive. Barnard used a mechanical model to advise executives on how they should sustain organizations in equilibrium by the careful manipulation of inducements to stakeholders.

Barnard reasoned that organizations were "co-operative systems." When an individual tried to do something, she is subject to strict physical and biological constraints that determine what it is possible to achieve. In order to realize major tasks, therefore, individuals have to co-operate and this gives rise to the birth of co-operative systems.

Co-operative systems will persist as long as they are effective and efficient. Barnard links effectiveness to the success of the organization in accomplishing its purpose. Efficiency relates to the need to provide, to individuals who co-operate, a surplus of satisfactions over dissatisfactions.

Effectiveness and efficiency are achieved through the interactions among people as managed by both the formal (studied by traditional theory) and informal (studied by human relations theory) structures of the enterprise. 

The formal structures are the consciously coordinated activities that define a common purpose, reward organizational members, and put individuals in communication with one another. The informal structure are those that  arise without a common or consciously coordinated joint purpose.

Barnard derives his conclusions about what executives should do in order to manage them properly. There are essentially three functions the executive must undertake.

First, organizational communication must be maintained by creating a proper structure for the enterprise, selecting suitable people for the executive role, and securing an informal organization that back up and supports the formal.

Second, essential services must be secured from appropriate individuals by making them aware of the organization, bringing them into a co-operative relationship with it, and making sure they are motivated to work for or with the organization by offering them sufficient inducements in return for their contributions.

Finally, the organization's objective should be formulated and the idea of a common purpose inculcated at all levels of the enterprise.

Today, indeed, it is extremely fashionable to see organizations as needing to serve the interests of all their "stakeholders" - not just the shareholders. To those who regard the performance and/or ethics of "tomorrow's company" as dependent on embracing all stakeholders, Barnard is the unrecognized intellectual pioneer.

(Jackson, Michael (2000). Systems Approaches to Management. Kluwer Academic / Plenum Publishers. P108~109)