Contingency theory and Systems theory are the two dominant theories that bring out the link between organization structure and the environment. Systems theory has evolved over time and undergone several transitions. This study tries to provide a more meaningful understanding about closed and open systems by linking with the object-observer model from physics. Additionally, the paper gives a finer view of the implications of the environment on the organization. It also captures several other areas like the role of environment on leadership, measuring the environment, etc. It acknowledges the role of perceptions of the managers in the process of adaptation. This study attempts to discuss the possibility of a perfectly closed system which is commercially oriented. It draws a conclusion on the imperative of environment on inter organizational network and interdependency. The paper, being conceptual in nature, broadens the current understanding and opens doors to several areas of empirical researches, which can take off from the propositions framed in the study.

The emergence of systems theory was able to stretch the spectrum of management beyond `closed systems thinking' and adoption of `universalistic principles' as prescribed by Taylor, Fayol, and Weber (Kast and Rosenzweig, 1972). The diverse knowledge from different disciplines can be applied into the field of systems theory. The theory as such was given a proper shape by Bertalanfy in 1950, but the philosophical roots date back to Hegel (1770-1831). Scott in 1961 accelerated the relation of Systems Theory (ST) with organization theory. There was a consensus amongst the system theorists regarding the key concepts of the theory. Systems theory was based on subsystems, holism or gestalt, input-transformation-output model, negative entropy, open systems view, system boundaries, dynamic homeostasis, feedback, multiple goal seeking, hierarchy of systems, equifinality and internal elaboration (Katz and Kahn, 1978). The challenges that ST had to encounter were innumerous. As Hebert Simon once commented ST in all forms of science was not perceived anything more than an analyzing and synthesizing tool. It bore the brunt of criticisms as the theory of organization was based on the metaphors with organisms. Rapport and Horvath distinguish between organized systems (biological, physical and social) with social organizations (constituent of Organization Theory (OT)). They draw out the difference based on OT and theory of organizations. They conceive ST as an extension of mathematics and the theory of organizations as an extension of social science with human beings forming the nucleus. It covers all kinds of systems and various kinds of organizations and OT delves only into social organizations.

The open systems theory view gave rise to the contingency theory. Contingency theory argues that contingency factors (size, environment and technology) affect the organization and especially its structure (Thompson, 1967) and (Lawrence and Lorsch, 1967). Both, external and internal environments have got their own implications. External environment includes the societal environment and task environment and internal includes organizational environment. First two can be explained using the open systems view and other from a closed systems view. Thus, it is inferred that the impact of environment as a whole can be substantiated using only the open systems theory. Hierarchy of factors affecting the organization structure, management and practices are given in Table 1 (Negandhi, 1983).