2 Business System ening Objectives ¢ Alter reading this chapter you will be able to: 1, Define a system and its subsystems. ; ” Explain business organisation asa system. ' \ 3, Enumerate the characteristics of business system. : . Enviiyse the interaction between business system and its environment. \ y So: 4, Analyst at Saat 5. Describe the systems approach applied in an organisation. Modern society is a network of systems. We live and work within systems. Human body itself is a system. Each of the social institutions ¢.g., family, city, etc. is a system. It, therefore, becomes necessary to know ani college, club . r c cores what constitutes a system and how does it function. ised whole composed of some components, which ‘ned and interdependent that a change in any,one of them influences: components and the system as a whi le. A system draws inputs from is a ansforms them in some form and deposits the outputs back into the ¢ outputs serves onmen' i The reaction or response of the environment tot ck. The system can modify and improve its functioning on the basis of su back. This process is illustrated in Fig. 1.3. ENVIRONMENT —__—_ | INPUTS i Transformation |————-| OUTPUTS | = “FEEDBACK | Fig. 1.3 Working of a system ists of subsystems which function in an i ated ' ste ‘ ne ample, an a lc system mane Rab eine, and the body. Engine provides. power, drive shaft $ \ = 1c FO > andeagars \ ni ery on carey he body containing ople/goods Any defect in any | re8i | makes the entire system out of order, For instance, a T evict beakdown of the vehi aay em is itself part of a wider system called ‘s . i 7 i o supra system’ or enviror satetaimAio ays ningofwsystem depen js not only on its subsystems but on the drive the ear 300, ‘or example, on a fogy or cloudy day itmay not be possible to : affects its apn though all its subsystems are functioning well. The system also ystems and the supra system. For instance, with increase in the iBUSINES number of vehicles on the road, air becomes more polluted making breathing ifficult. as su cae difficult. «may be classified into two broad eategories-(a) open s tems, a) closed systems. An Speyer continuously interacts with its cnvironment and +i ry. All living organisms—human beings, animals, insects, plants, etc-are open systems, On the other hand, closed systems do not interact con- tinuously with the environment and arc not self regulatory. Non-living organisms io tables, chairs, buildings, ctc. arc closed systems. nisation as a System oss enterprise is an important-system created ta sati humanggeds ¢ production and distribution of woud and services. Like any other it draws inputs (raw materials, !abour, capital, etc.) from the environment. ese inputs are combined and converted into outputs (goods and services, interest, dividends, taxes etc.) which zre supplied to the environment. Business is fecdbeck information from the environment and adjusts itself accor- hen the outputs match the expectations of various sections of society, siness system continues to receive inputs froin the ¢1 ronment) Thus, “the business system is a combination of all resources, organisations a institutions which are dircctly or indirectly related to the production of ‘goods and services for the satis{action of human needs”. Business system functions within the economic, social, political and cultural environment of the country or the world, Such environ- ment constitutes its supra system. Business system comprises industry and commer< 's of n 00 n trade and its auxiliary services. Thus, all industrial and commercial undertakings engaged in the production and distribution of goods and services are the subsystems of business system. Business firm constitutes the heart of the business system as all other subsystems revolve around it. Each business undertaking may be viewed as a system. It consists of the subsystems of production, marketing, finance, personel, ctc. Each of these in turn contains subsystems. For ‘example, the production system is made up of plant location and layout, plant B Business Fium's sub systems 18, Environment Fig. 1.4, Sub-systems of Business System 1. 8.0. Wheeler; op. cit., p. 29_- |yildings and equipment, productior i 5 s buono, rear ch aa developmen et” and control, quality control, inven- rious subsystems of busin: ii ; santtis proluainyton tat rtsinerest an mercpedont For cram sell the goods. In the absence of sales, finance anol provide funds to the) ersonncl and research and development Yee Ths ieee behes the different sub-systems gives rise to business behaviour which is known as ‘emergent Se eerie Smooth functioning of business system requires integration an linati between the interacting sub-systems. In the process of cna conten several problems arise. First, specific objectives of cach subsystem are different. Secondly, the heads of various subsystems have different orientations as functional experts. Thirdly, interde; ndency between the subsystems is not taken care of and the subsystems tend to function as watertight compartments. Fourthly, there may be lack of mutual understanding, and co-operation among people working in different departments. Lastly, individuals may give priority to their personal interests when these are in conflict with the goals of the system. Management of a business undertaking may apply the following techniques in order to create and maintain proper co-ordination between the various subsystems of business. (1) The goals of the various subsystems should be reconciled. Similarly, goals of the system and those of the people working in it should be harmonised (2) Heads of various functional areas should understand and appreciate the view points and needs of one another through regular meetings. 6) The interdependence between the different subsystems should be ade- quately highlighted in the daily work routine of the business. @ Open channels of communication should be established to develop mutual understanding and co-operation between people working in different departments (5) A balanced emphasis should be Rid ‘on each subsystem. (6) The functioning of the entire system should be reviewed periodically. Necessary adjustments/improvements should be made to remove weak points, if any. fracteristics of Business System racteristics of Business System «The main features of business system are as follows : wy 1. Goal-ori i system is directed towards the achievement of ives, e.g, supply of goods and services to consumers, profit making, service to society, etc. = renee Sem is creative as it adds value to the inputs. The o ess system is morc than the sum of its parts. This is called synergy’, Business system creates various forms of utility. vs i i ave a well-defined structure with its parts in an orderly manner. But, business system is very complicated and consists of innumerable elements and entities. Each subsystem of business is in itself a system having its own subsystems. Therefore, its successful management requires a high degreee of knowledge, skills and experience. E i “Various components of a business system arc highly pel g and interdependent. There is interdependence not only between the departments of a firm but between different firms and industries too. People working in a business enterprise interact with one another and have social relation- ship due to which it is known as a ‘psycho-social system’.diverse in design and operation. There is 5, Diversity. Business syst ye, ownership, location, ‘verity not only in the range of output but also in th Sivercation, ‘management, etc., of business firms. ynamism. Business is an open-adaptive system 7 infin by its environment continuotsly, The structure and operations of business ssstem are constantly changing duc to changes in its environment. spt Socio-economic system, Business is a part and parcel of the wider sy _ The wider supra-system constitutes the environment of business systent. Business environment con ‘of all those economic, social, political, legal, tech- pines tand other forces which influence the functioning of business. Economic environment ot economic system serves as the framework of business system. There is a constant intcraction between system and its environment. 8. trol Mechanism. Business system works through control mechanism. The control system of business is designed by management. The nature and scope of the control mechanism varies from one Titm to another. Control mechanism helps to coordinate the ‘organisational activities and to respond to environmental opportunities and constraints. 7 ‘Thus, a business enterprise is an open, adaptive, goal-oriented system with its enyironment acting as a suprasystem. \ ‘action Between Business System and its Environment J: mf (busines operates within the frame work of business environment of, supra- {Si Business environment refers to the aggregate of all forces and institutions ich are external to and beyond the control of individual business concerns and their managements. This environment is of several types, €.g:, economic, social, cultural, political, natural, etc. It exercises a pervasive influence on the functioning of the business system. economic environment refers to the type of economic system (capitalism, combmunism, mixed economy, etc.), economic institutions (banks, financial institu- tions, capital market etc.) and economic relationships arising from the organisation of means; ol production and distribution, Economic environment provides the o} )por- tunities and constraints within which business firms operate. Social and cultural , environment consists of social institutions, social groups, population structure, beliefs | and customs, class structure and mobility, educational system, social values and beliefs, etc. All these forces influence the ‘business system and its subsystems. For instance, recent economic liberalisations in India have opened new opportunities for business firms both Indian and foreign. Similarly, consumer consciousness has forced business firms to adopt the marketing, concept. Political and legal environment comprise the political system, ideology of the party in power, political stabil public opinion, laws of the land, etc. All this frame work determines the ownership pattern, size pattern and sectoral structure of business. Business must clearly under- stand the dynamics of politics and obey the laws of the land. They cannot servive and prosper without the support of political opinion. Science and technology determine the techniques of production and distribution, For example, the advent o! commercial radio and television has introduced new styles of advertising. Physical and natural environment consists of ecology, natural resources, etc, Business is being it influences and is expected to preserve the ecological balance by avoiding all types of pollution, Usiness system in turn exercises significant influences on all types of ‘ment Th viron- Dur sees 7 size and structure of business, the techniques and philosophy of have led Stee the economic and noneconomic environment. Business needs the development of new economic institutions and instruments, ¢.f.mutual funds, merchant banks, te Febentures, EXIM scrips, ete. Business and attitudes of society, Business sompanii Fowth ha: venture capital, convertible fected the life styles, valu e as been largely responsible for environment has undergone a sea change duc to the pr problen s. Political and le presence of busin S is A reciprocal relationship between business. sys n and its Today, the ! interface anagers are ingly expected i lance betw interests. of all I n il to master the environment in which they > to carry on their operations, environment will engulf them: environment, the two influencing and shy ceva challenge betore business mana between bu: fo evolve and maintai. an appropr Saions of soviety. [businessmen f hav systems Approach Applied in ping cach oth ment is to man: fr continuously, tivel Organisation Systems approach to organisation and management was developed during the 1950s. Many pioneers such as E.L.Trist, A.K. Rice, F.E. Kast, J.-E. Rosenzweig, R.A. Johnson and others made significant contributions to this approach. Under this approach a business organisation is viewed as 7 1s composed of subsystems. These subsystems arc interrelated and together they make the system work. Business takes inputs from the environment (suprasystem), transforms them into outputs and supplics the outputs back to the environment. Under this approach, management is cxpected to regulate and adjust the tem in order to obtain the best possible performance. The activities performed management are of two types : (a) maintenance, and (b) adaptation. Main- tenance activities are concerned with ensuring the efficiency and stability of the business system through the formulation of rules, procedures, etc. These also involve controlling and correcting the peformance of different resources within the organisation. Adaptation activities involve adjusting the system to its environment orto alter the environment so that it is more intune with the goals of the organisation. Both types of activities are equally esscatial for the efficient and effective functioning of the business system. Systems approach offers the following advantages 5 1. [tis helpful in identifying the forces which obstruct the efficient functioning of business system. : 2. It is useful in the determination of short-term and long-term goals which are rational and realistic in the context of the prevailing environment 3. It stresses the dynamic character of business and views it as a living organism, 4, It directs attention to business as a whole rather than to the parts that compose it. 5, It highlights the everchanging cnvironment and the need to manage it effectively. is 6. It stresses both internal and external linkages of business 7.1t provides useful information for decision making, and control through the feedback mechanisms. Systems approach suffers from the followin limitations: J therefore makes the job ed brain can disentangle 1 change in one subsystem (1) does not offer a unified body of know! sda ane of a manager far more complicated. Only a es the complex interreationship and determine th on other subsystems.(2) Systems concepts are quite abstract and it becomes difficult to determine ciscly What to do to affect the system in the desired manner. 3 (3) Systems approach underestimates the role of human factor and in fact suggests its manipulation like arty other factors. pre FOR FURTHER STUDY Anderson, R.G. Business System, Ulinois, Richand D.lrwin, 1982 Caruth, Donald L. and EM. Rachel, Business System—Articles, Analysis and Cases, San Francisco, Canfield Press, 1983, Kast, Fremont E, and Rosenzweig, James E; Organisation and Management, Tokyo, McGraw Hill Kogakusha, 1981 ' Wheeler, Bayord O; Business—An Introductory Analysis, New York, Harper & Row, 1982. TEST QUESTIONS - 1, Answer each of the following questions in not more than 50 words (a) What is a system? (b) Define Business System. (©) Write a note an Business Environment. 2. Answer cach of the following questions in not more than 300 words. (a) Describe the working of a system” (b) How will you integrate the subsystems of business system? (©) "A business enterprise is an open adaptive system with its environment acting as the supra- s;em". Elucidate. 3. Answer each of the following questions in not.more than 1200 words. (a) Describe business organisation as a system and explain the interaction between various subsystems of business. (b) Explain the characteristics of business system. (c) Discuss the interaction between business system and its environment. (4) What do you understand by systems approach ? Describe its advantages and limitations when applied in an organisation. CASE STUDY Alter graduating from University of Madras, S.Ravindaran started retailing stationery. He had been facing problems and consulted his former lecturer M.Srinivasan, ‘The lecturer advised hinn that business is an open adaptive system operating in a dynamic suprasystem, How can Ravindaran gain n his business by applying the systems approach ? Amplify and illustrate.