Organisations as complex social systems: a systemic view

Organisations are usually understood as serving their “creators” to make certain goals and purposes achievable. In this sense, they are an instrument, however complex in construction, in the hands of those who want to use the organisation for their purposes and goals.

According to this understanding, companies exist to maximise profits in the interests of their owners. Administrative bodies are supposed to implement the political goals of decision-makers consistently. Schools are institutions meant to realise the respective education policy targets with regard to pupils.

Emphasising the instrumental character of organisations has very specific consequences. Internal structures and processes have to be designed so that the individual units mesh like a set of gears. In this way, the performance and output expectations of decision-makers are meant to become predictable with great certainty. Heinz von Foerster would speak of a trivial machine in this context.

The image is easy to describe: the input of those leading meets those being led, who are conceived of as a trivial system, and produces their output. In this sense, the organisation is a coherently built transformation mechanism that converts certain inputs into the expected output.

According to this understanding, leadership exists to ensure the efficiency of the transformation mechanism. The guiding question is how the interaction of organisational units and function holders can be influenced so that the gears work with as little friction as possible. For this purpose, those with leadership responsibility use the leadership instruments intended for it, for example sanction and incentive instruments.

Hierarchy, as an indispensable ordering principle, has the task of ensuring that the will of the “creators of the organisation” is enforced and implemented uniformly across all levels. Hierarchy is thus understood as a chain of command equipped with the power to reach through.

According to this understanding, organisations consist of their members. It is assumed that the membership role is conditioned in such a way that the “disruptive wilfulness” of the actors can be kept out of work as far as possible.

Person-oriented leadership aims to ensure that the actors perform the tasks entrusted to them with commitment and without distortion by personal self-interest. The return for this commitment lies in monetary remuneration and in the opportunity to build a career.

If the organisation’s output expectations are not met, this way of thinking offers two explanations. Either it is due to a lack of willingness or ability to perform on the part of the people involved, or the structures and resources deployed are not adequate. The search is therefore always for the optimal combination of factors. The task of leadership is to improve the instrumental character of the organisation or of the people involved when disruptions occur.

In this understanding of organisations, leadership defines itself as being outside the events to be influenced. It sees itself as a shaping factor that influences the instrument “organisation” in a causal sense. This positioning creates an immensely high expectation of the shaping power of those leading and can easily lead to overload.

At the same time, it strengthens the heroic self-image of those with leadership responsibility. With its help, they can attribute the organisation’s successes to themselves. They ascribe failure to the inadequate functioning of the “instrument”.

The particular strength of this understanding undoubtedly lies in the principle of rationality. It forces the use of resources to be justified against the desired output. In doing so, it reduces the complexity present inside and outside the organisation and relieves everyone involved of a high degree of uncertainty.

In addition, it allows relatively clear rules for attributing success and failure, as well as guidance for dealing with disruptions. The people involved are usually relatively clear about what to do when problems arise. In this sense, the “trivialisation” of social events in the organisation provides a stable orientation for action.

The downside is that for this understanding to function, it needs relatively manageable and, above all, stable framework conditions in the organisation’s environment. In the early phases of industrialisation, the task was to supply customers’ awakening consumer needs with simple mass products. Markets remained receptive to such products for long periods. Under these conditions, organisations were able to develop relatively successfully around this understanding of organisation and leadership.

Nevertheless, it cannot be overlooked that even in these historical phases a critical countermovement became established, the human relations approach. It drew attention to the negative consequences of these conditions and pointed to the opportunities for developing the talent potential of actors in organisations.

In view of present-day social conditions and their dynamics of change, traditional organisational arrangements are as a rule no longer capable of responding. They often react far too slowly and, in relation to the expected performance, to a clearly insufficient degree to changed conditions in their relevant environments.

In other words: the form of handling complexity provided in these organisations no longer matches the level of complexity of the environmental segments for which they provide services.

Since the second half of the 1980s, organisations have been rebuilt, restructured and equipped with flexibility at great effort. New forms of internal differentiation have become established, such as division into business areas, process organisation and the increase in project-based structures. The accelerating process of internationalisation contributes to a considerable increase in the inherent complexity of organisations.

These changes, observable in practice for some time, suggest thinking differently about organisation and leadership than before. What is needed is an understanding that provides suitable concepts of thinking and steering in order to grasp and handle the significantly increased internal complexity of organisations appropriately.

transformis understands organisations as a very specific type of social system that social evolution has produced over the past two to three centuries. They are social entities constituted around handling social problems.

This refers to problems whose handling requires the coordinated interaction of a large number of function holders working with a division of labour and makes it necessary to mobilise an exceptional deployment of resources. Neither individuals nor private social formations such as the family or household can provide such services.

In this understanding, modern society depends for its reproduction, for better or worse, on the performance of its organisations. This is why there is a mutually stimulating relationship between the developmental dynamics of society as a whole and the emergence of ever new forms of organisation. The diversity of organisations repeatedly creates follow-on problems that stimulate the emergence of further organisations.

transformis understands organisations as social systems that, for their own self-preservation, constantly look for tasks, goals and purposes they can use to continue what they do. In the sense of this self-preservation, they are both means and end for themselves.

In contrast to the traditional creator myth, organisations are products of themselves that direct all their energy towards making their continuation possible. Once an organisation has been brought into being, it seeks out its tasks, its meaning and purpose itself. It changes them when necessary to secure its own continued existence.

In the sense of Humberto Maturana or Niklas Luhmann, organisations can be described as very specific forms of living, autopoietically reproducing systems. Heinz von Foerster calls this type of system non-trivial machines. Every input meets a constantly changing internal state that ultimately cannot be directed causally, so the output cannot be programmed from outside.

In this understanding of organisations, the basic elements of social systems are communication events. With specific reference to organisations, this is the communication of decisions. Organisations are therefore not something thing-like expressed primarily in buildings, machines and technical infrastructure.

They are a highly dynamic occurrence that only crystallises in the constant process of deciding and connecting further decisions. There is an affinity here with Karl Weick’s process-based understanding of organisations.

Organisations therefore consist of decisions and their permanent interconnection. Their members are a particularly prominent environment of the organisation. Decisions in Luhmann’s sense are communication events that fix contingent situations for the moment in question so that further decisions can connect to them. Contingent means: one can act this way or otherwise.

Organisations are thus specialised in converting continuously newly generated uncertainties into momentary, situational certainties in the service of delivering their performance. This happens precisely through continuous decision-making.

To prevent decision-making from reinventing itself again and again in an uncoordinated and, as it were, chaotic way, organisations develop specific framework conditions for decision-making. Luhmann speaks here of decision premises. They provide the internal organisational context for everyday decision-making.

These meta-decisions include everything that makes up the actual reason for an organisation’s existence, its substantive identity. These premises provide answers to three questions. Why do we exist? What kind of problem in our environment do we take care of? From which services do we derive our social purpose? These premises are usually generated implicitly or explicitly in strategy development processes and continuously developed further.

Another type of decision premise arises from the specific logic of internal differentiation. It answers the question of which principles govern the formation of sub-units and their interconnection within the organisation. These premises provide rules on who can and must legitimately have contact and communicate with whom in the course of performing tasks. They also determine which relationships can legitimately be ignored. This refers to the lines of communication and reporting.

Finally, decision premises also refer to all determinations connected with people, because programmes are associated with people. These are expectations that can be pinned to people and their characteristics: the person in a particular position stands for something particular. They are constructions of expectations with a personal character shared in the organisation, because a certain stability through predictability can be linked to them.

Luhmann calls these three basic types, namely substantive identity, communication and reporting structure, and people, decidable premises. The matters for decision they contain can be shaped and changed directly through decisions.

In contrast, Luhmann speaks of undecidable decision premises with regard to everything that is today associated with the concept of organisational and corporate culture. This includes fundamental convictions, beliefs shared as a matter of course, values and ritual patterns of communication and behaviour. These premises have an enormously strong influence on the coordination of behaviour in organisations.

They elude direct, explicit influence. They take shape and change, as it were, behind the backs of the actors, as collectively reproduced patterns form through the repeated experience of very particular standards. They are influenced above all by behaviour shown repeatedly by key players. Merely talking about culture therefore does not set changes to these premises in motion.

Organisations derive their reason for existence from providing services to solve problems outside themselves. This forces them into a characteristic balancing act between what happens outside the organisation and what happens inside it. In theory, this is referred to as oscillating between self-reference and external reference.

To handle this distinction between inside and outside, organisations usually develop fixed boundaries. Boundaries help to determine whether events are to be attributed to the organisation itself, that is, happen inside the organisation, or to the environment. An important element of this boundary-drawing is the organisation’s clear rules of membership.

With the help of these boundaries, organisations create a protected internal space. In it, structures and processes, standards and routines, rules and norms are stabilised without every possible environmental event being able to change this internal space.

The relative sealing off of the internal space is an indispensable prerequisite for the efficiency gains typical of organisations to be possible at all. They arise from routines and from the continuous build-up of experience and knowledge.

A paradox is built into this mechanism. The highly selective sensitivity to relevant environmental developments can lead organisations to miss vital changes in their relevant environments altogether. Nassim Nicholas Taleb coined the image of the black swan that is overlooked. The function of leadership starts precisely at this unavoidably built-in danger of excessive self-referentiality.

In this changed understanding of organisations, leadership is a characteristic organisational phenomenon. It is a specific function that is normally differentiated in organisations in order to define impulses for development through constant comparison between inside and outside, the implementation of which advances the organisation’s performance.

With the function called leadership, organisations equip themselves with a special capability. They can put their current state, entrenched in the past, under pressure to develop further, measured against what is required in the relevant environments.

This does not mean that the differentiation of the leadership function succeeds to a sufficient degree in every individual case. Organisations also tend to neutralise the leadership impulses they themselves have set, in the interests of stabilising the status quo. This simultaneity of supplying oneself with leadership and relativising its impulses again is a fascinating phenomenon of the type of social system called organisation.

Understood in this way, leadership is not a phenomenon attached to people, nor a personal quality as in the traditional understanding of organisations. It is a more or less well-developed “organisational capability” that regularly supplies the social system with the unsettling impulses that trigger the necessary steps of further development.

Performing this function needs suitable function holders whose personalities bring the competencies to meet the complex requirements profile of these tasks. This is always a mix of analytical and social competencies as well as the power of reflection and assertiveness.

In terms of outcome, however, leadership achievements are never the success of a single individual. They are always the result of an effective interplay between several function holders, both horizontally and vertically.

Anyone who looks at the phenomenon of leadership with these eyes discovers a wealth of established practices through which leadership is exercised in an organisation. These practices correspond to very particular mental models, basic attitudes and convictions among the actors involved, both those leading and those being led.

Against this background, it becomes understandable that an individual leader, possibly new from outside, cannot simply change these established practices and replace them with their own ideas. The further development of leadership structures, the decision-making and communication routines built into them and the associated “mindsets” of the actors is a highly complex process. It is itself a highly demanding leadership achievement.

A central difference from tradition is that leadership is understood here as an integral part of organisational self-organisation. Leadership is not something outside the organisation that acts on it in a targeted way. It is part of what happens and has always been influenced by it.

Its effectiveness therefore depends to a high degree on the acceptance and credibility leadership impulses have in the eyes of those affected. One of the foremost tasks of leadership is to keep a careful eye on these implicit preconditions for its own effectiveness and to ensure they are in place.

Maintaining credibility, the importance of which can hardly be overestimated, depends primarily on how far those leading succeed in conveying their measures as serving functionality. With these premises, this understanding of leadership takes leave of the heroic self-image of tradition.

If one follows the basic idea of an understanding of organisation and leadership inspired by systems theory, it is naive to believe that one can use an organisation or parts of it as a mere instrument for realising one’s own interests and goals.

Organisations are highly wilful social entities. In them, all actors observe one another, observe how they are observed and “calculate” the existing coordination mechanisms from the evaluation of these observations. Knowing about this complex, self-dynamic social occurrence makes it possible to shape leadership interventions more realistically.

The main advantage of this way of thinking about organisation and leadership is that the phenomenon of organisation, with its inherent complexity, is embedded more appropriately in the social dynamics of its relevant environments. Significantly more complex environmental conditions can ultimately only be answered with an appropriate increase in the internal complexity of organisations. This is what the law of requisite variety formulated by W. Ross Ashby states.

This understanding also makes clear, however, that significantly higher demands are placed on the people involved. For their functioning, today’s organisations depend on the people involved at all levels thinking along very carefully, observing what happens and feeding useful impulses from these observations into internal communication.

Without this sensitive perceptive potential of the actors, organisations develop no early sensitivity to new requirements outside themselves, nor to current and potential sources of disruption inside. This sensitivity is the decisive basis for the self-renewal potential of organisations.

Employees’ committed contribution of perceptions and observations requires a degree of openness in dealing with one another and a tolerance for different perspectives that are not normally found to the necessary extent in organisations.

The greatest challenge of the changed understanding of organisations lies in how those with leadership responsibility deal with the higher level of uncertainty and complexity. The requirements profile for leadership, from team leader to CEO, combines highly contradictory challenges. Multiple conflicting goals have to be dealt with simultaneously in organisations.

At the level of individuals, this changed level means dealing with contradictions and paradoxes both cognitively and emotionally. It requires an unusual degree of tolerance of tension and ambiguity, as well as the ability to observe and reflect on oneself.

Against the background of this understanding of organisations, it is known that organisations tend to cling to their established processes, structures, routines and rules. This kind of self-referentiality regularly causes organisations to lose their ability to respond to the current challenges of their relevant environmental segments.

Leadership has the task here of ensuring constant comparison between existing organisational conditions and future requirements. Strategic repositioning often makes the organisational need for further development clear in all its consequences.

In this context, the fundamental question arises: what kind of organisation does the organisation need in order to prove its competitiveness in future too? This refers to the prevailing construction and design principles of a future organisation. It has to be worked out which dominant logic the structure of the organisation should follow.

transformis distinguishes four logics here. A structure by business area provides for companies within the company. A primarily process-oriented organisation coordinates activity mainly around a core process. A function-oriented structure organises the sub-units around clearly defined functional focuses. A project organisation assumes that business is primarily conducted in project form, as in plant engineering or the construction industry.

Such design processes often produce solutions that combine these different logics in a very particular way in order to meet the multiple goals of strategic positioning.

Eight topics are central to answering these questions. The first is ensuring consistent customer orientation. The second is managing steps towards internationalisation in organisational and leadership terms. Added to these are the design of communication structures and the establishment of decision-making processes.

The fifth topic is building suitable leadership structures, in particular establishing management teams that are able to work effectively. This is followed by clarifying decision-making authority and responsibility and clarifying roles and tasks. The eighth topic is the function descriptions and the associated requirements profiles.

Every effective intervention by leadership depends on communication. The leadership function is realised in the interaction of two or more function holders or in the interplay of different organisational units and levels of leadership.

Setting leadership impulses means coping with a characteristic limitation. Those leading want to bring about very specific effects in people or social units. However, the conditions for bringing them about are not in their hands. It is always others who ultimately decide what they do with the impulse: whether they follow the intention, simply ignore it or push back.

Exercising leadership therefore means setting in motion a negotiation process based on communication which, for all the dissent in the initial situation, leads where possible to a jointly supported yes. In such processes, those leading have to bear the fact that they have unilateral control over neither the process nor the result.

The decisive resource leadership can draw on here is its positions. They give leadership privileged opportunities for observation and reflection, so that it can charge leadership impulses with particular credibility. This only succeeds if the addressees observe that the impulses are driven by concern for the performance of the respective context of performance and derive their justification from this context.

An important ability that leaders at all levels must have is a realistic assessment of their own abilities. It prevents action based on overestimating or underestimating oneself.

It is the prerequisite for dealing with inner confidence with one’s own need for complementing others in performing leadership tasks. Anyone who assesses their abilities realistically surrounds themselves with good people who skilfully perform the leadership tasks not covered by themselves. This thesis comes from the organisational understanding of leadership. The person-oriented understanding generally leads to overload.

This raises the question of how leaders ensure that they feel competent even in difficult, uncertain, opaque and very complex situations. The ability to secure and restore one’s own sense of competence in the face of uncertainty has to be built up.

The basic experience is this: when leaders are massively unsettled in their sense of competence, they no longer align all their actions and efforts with the factual requirements of the situation. They then fight only to restore their sense of being competent. This is why knowing one’s own limits of resilience is so important. It helps to avoid slipping into such a stress zone.

Leadership creates very specific relationships of observation. Those being led look very closely at what they can read from the specific behaviour their leaders show. This behaviour provides the material for interpreting the current state of the organisation. Leadership thus attracts very particular attention and can operate with this attention as a resource.

This requires leaders to be able to observe closely how they themselves are observed, what images they create around them and what readiness to act among employees is linked to these images. They should have the ability to observe themselves within a social structure and to take a helicopter view. Two questions guide this observation: what does my environment trigger in me? What do I trigger in others?

In this sense, leaders and what they stand for through their everyday behaviour are the most important instrument of intervention. The most important ability of leaders is therefore a realistic self-assessment of their own presence in their area of responsibility.

With every act of communication, the leader intervenes and thereby produces effects, whether intended or not. In this sense, leaders cannot not lead as soon as they are observed by other members of the organisation.

For this reason, it is so important to know what one’s own behaviour triggers in one’s environment and how the environment affects the leader in return, whether it strengthens or hinders them. Leaders who can observe themselves well in a co-creation process find it easier to produce targeted effects and evaluate them continuously.

In a co-creation process understood in this way, what works and what does not work are created together. This view protects leaders from projecting or externalising problems onto other people in the company too quickly and without justification. It helps them to recognise their own impact and the responsibility associated with it.

transformis supports organisations in working out the organisational design that fits their strategy. The approach draws on experience with different solutions for different types of organisation and industries.

This expertise is used to mobilise the knowledge distributed in the organisation in a targeted way to answer the design questions. Such professionally supported processes produce solutions that are capable of responding in substance and at the same time can draw on the commitment of the key players involved.

Organisational solutions arrived at in this way create a solid basis on which the implementation of the intended solution can be driven forward through targeted change management. Such transformation processes are often very far-reaching and full of tension. They need a rich repertoire to be steered in constructive directions.

The implementation of demanding organisational designs relies fundamentally on the learning ability of the organisation and of the key players at the different levels. If it is missing, such processes get caught up in the unavoidable counter-reactions and resistance and peter out, as many case studies show.

To increase learning ability at the organisational level and at the individual level, transformis develops and implements suitable learning architectures. In them, organisational and personal learning are combined.