Modern Approaches to Management

Besides the classical and behavioral approaches to management, there are certain modern approaches to management, like the systems theory and the contingency theory. These two approaches have significantly shaped modern management thought.

Systems Theory of Management

According to the systems view, an organization cannot exist in isolation. To function effectively the Management must also consider external environmental factors influencing the organization.

The two basic types of systems are closed and open systems.

Open System: A system that interacts with this environment is regarded as an open system. All organizations are open systems as they are dependent on interactions with their outside environment, whether it is a new product decision or a decision related to the employees of the organization, the organization must consider the role and influence of environmental factors.

Closed System: A system that does not interact with its environment is considered a closed system. A closed system is a relatively self-contained, a self-maintaining unit that has little interaction or exchange with its environment. An assembly line could be treated as a closed system as its day-to-day functioning is not dependent on external forces.

An organizational system can be further divided into four major components:

• Inputs: Inputs are what is put into a system like money, materials, men, machines, and other informational sources. These inputs are required to produce goods and services.
• Transformation Process: Transformation processes or throughputs are managerial  and technical abilities that are used to convert inputs into outputs
• Outputs: Outputs are the products, services, profits, and other results produced by the organization.
• Feedback: Feedback refers to information about the outcomes and the position of the organization relative to the environment in which it operates.

Contingency Theory

A contingency approach to management is based on the assumption that the optimal course of management action is contingent (dependent) upon the internal and external situation. Management actions must change and adapt to specific situations as there is no best way to organize a corporation. The contingency approach provides a framework for solving problems based upon the environmental conditions rather than prescribing a specific solution.

This theory is also known as the situational theory. It has been widely used in recent years to integrate management theory with the increasing complexity of organizations. When managers, consultants, and researchers tried to apply the concepts of the major schools for management to real-life situations they realized that there is no one best way to manage all situations. Managers, need to make business decisions only after carefully considering all situational factors.

According to the contingency approach, the task of managers is to identify based on the particular situation and time which decision best will contribute to the attainment of management goals. Hence this theory holds good for several management situations.