Business Organisations as Systems

Business activities and structures across local and world market places pervade our lives at
home and at work. Buying a sandwich from a cafe involves:
an entrepreneur investment
supply and demand processes for buying/selling things (trade)
sandwich design job contracts and task structure - who does what
hygiene regulation customers and quality
profits and tax reporting the application of technology.

The business is a system organised to provide goods and services to others who
have needs. It transforms "inputs" into valued "outputs".

Business Systems - Some Learning Objectives

Typical learning objectives for a business undergraduate may include:

• to acquire knowledge, understanding and skills which can

be used to analyse, explain and influence business events and
activities.
• to study "about" business and "for" business i.e. to prepare
for a possible career)
• to develop high level, critical skills for evaluation and
application of good business practice particularly if as an
entrepreneur/manager you want to develop and implement new,
successful business solutions.
• to provide answers to the following:
• why and how businesses form, grow, survive or
decline?
• what factors social, technological, economic and
political/legal influence business practices and decisions?
• how do businesses interact with the environment
and those who have an interest in the business?
• how are businesses managed and what methods
can be used to support business management and
decision-making
• what "know-how" does the business person need
and how do you acquire these abilities?
• to comprehend the limits and claims of business
"science".

A Systems Approach

Is there a science of business? ? In studying "business" structures and processes as

phenomena, our task is to define the elements and relationships involved in this human
activity. We may then be able to explain why business structures and processes occur and
behave as they do. Knowledge explains and gives control over our world and behaviour
within it. With knowledge about and for business and other contributory disciplines,
practitioners and those on the receiving-end have "know-how" to influence and contribute
to "business" processes and outcomes. This view may therefore enable you to define your
own business and learning objectives better.

Systems concepts are used throughout the physical, behavioural and information sciences
to help with definition and understanding of phenomena. We should be able to model
businesses, their relationships and processes. The human body, the weather, the rain-
forest and a computer system are examples of phenomena which scientists model to test if
or how something works. We are interested in seeeing how the model behaves when
subject to selected variables/influnces. Modelling is thus important for problem analysis
and solution development.

Even though problems emerge in applying general systems theory, when we probe the
subject matter of business more deeply, nevertheless at this stage it is a useful way of
analysing

• different forms of business organisation,

• the business's mission/purposes and objectives
• the components of and relationships between business
activities
• the processes businesses engage in and
• how businesses interact with the environment they exist in
and seek to serve.
• the business as a whole, how it achieves a dynamic
equilibrium with its environment and the belief that the business is
greater than the sum of its parts. (Holism, equilibrium and
synergy)

Deterministic, probabalistic and self-adaptive systems.

Are the business systems or sub-systems being studied:

• deterministic (e.g. when A is present, P always occurs)? A

payroll system is such a rule- bound system.
• probabilistic - chance and risk is involved? The behaviour
of stock control and cash flow systems may be predicted but some
elements are variable and not within the control of the system.
These can be predicted in terms of probability of occurence
• systems with adaptive/learning properties (e.g. the
management of relations between a hospital trust and GP fund
holders)?

Business organisations are seldom deterministic systems - people are involved, unreliable,
emotional people! Unpredictable events may happen (probably.......). People learn to serve
their own advantage - they are self-adaptive. The organisations they build and manage
become self-adaptive. There is much room for debate for instance about whether
management actions are determined by choices the managers make or whether these are
forced by environmental and technological developments.

Clearly world-systems of business, business institutions and sub-systems of business are

open-systems that interact with other entitities - institutions, customers, trends, data that
exist and operate within its environment. Business which fails to respond to market and
other changes and fails to at least maintain its resource-base - is liable to suffer from
problems of entropy - losses of energy and a tendency to becoming disorganised.
Interaction with the environment are essential for the open, self-adaptive organisation to
renew itself.

Environmental Factors - Internal and External

Typically a systems approach involves researching and accounting for the nature of the
business's internal and external environments - how these affect and are affected by its
activities.

A business exists in a moving external environment. Business people need to understand

this environment and how it works. Furthermore, the way their business is structured
(they may have designed it!) - its internal operations and behaviours - provide it with an
internal environment. Both provide contexts for social, political and economic interaction,
the application of technology and other processes, that characterise and shape the
business's performance and operations. We cannot understand "the business' unless we
understand its internal and external contexts and demands.

If our open system does not continually review its functioning, organisation structure and
management systems (including information) in the face of changing environmental
conditions (as detected from input), it will move towards a state of disorganisation and
failure.

Boundary Management

In any organisational study the boundaries between one system and another and the flows
and interactions at these boundaries - pushing/pulling forces - have to be identified and
their significance defined. The customer service desk at Marks and Spencer represents a
boundary between one system and another. A computerised information system has
boundaries, a principal one of which is the design of the interface between the computer
and those who use the computer. The interface the reader is using right now - can
exemplify itself.

Deciding where to draw the boundary involves defining such things as responsibilities, ]
areas of work, rules and constraints, decisions to be made, who clients are/are not,
individual perceptions and motivations, who should know and who should not.

The Cafe

A cafe can be modelled as a simple input, process, output, feedback system. As a business
we are interested in its structure, status and behaviour in response to the inputs it
receives.
List six specific inputs to a cafe system

• What processes can you identify for the cafe as a

system?
• What are the cafe's outputs
• What are the inerface problems that customer
encounters when ordering a meal and paying the bill? Why
are these problems?
• What feedback information might the cafe system
proprietors obtain and use?
• Who are the cafe's stakeholders? What is a
stakeholder?
• We need also to consider the sources of power,
authority and influence that govern relationships, between
the business's internal and external stakeholders.

Feedback

Feedback is essential to processes of organisational control. Feedback involves system

outputs looping and returning as further inputs into the system. These are received and
used to evaluate the status and performance of the system itself.
Structures and Processes

A business system's functional processes both general and specialist

product development accounting operations,
distribution sales and marketing personnel
management administration information services

all work to organise, produce/deliver (add-value), regulate and control, maintain and
change parts of the system and the things that system participants do. More specific
functions can be defined for a hospital, legal firm or local authority e.g. education, social
services, roads, local democracy, parks and gardens, community services, town planning
and building regulations.

Such processes are delivered via structures (arrangements of roles, activities and
processes). The structures may be represented by the organisation chart. A key aspect of
such structures is that activities are governed and guided by

"policies, authorities, standard operating procedures, rules and values".

Strategic and operational business policies defined by senior members of the organisation
guide the way employees behave and indicate how organisational objectives are to be
achieved.

Some structures are formal and "constitutionally" well-defined e.g. the articles and
memoranda that 'incorporate" the firm. Some structures are informal and more fuzzy -
friendship groups, common interest groups, unwritten rules. Rules may be logically and
technically defined whilst others are defined by human factors; feelings and expectations,
values and ethics.

Management roles and processes

These are of significant importance in terms of roles, powers and behaviours which involve

forecasting planning organising

motivating others maintaining organisational culture communicating

reviewing controlling managing contingencies/risk

Modelling

Using various concepts and mapping methods we can model the behaviour of businesses
and parts/aspects of practice and organisational processes. Max Weber for example
provided a model of organisational form by defining the characteristics of a bureaucracy or
rational-legal system. This model offers guidance on the design of real business
organisations, their policies, standard operating procedures, job relationships and
information/exchange structures. We can compare the model's weaknesses against the
everyday needs of the competitive, dynamic business operation.

Many other models of organisational behaviour can be constructed e.g.:

 • the decentralised organisation
• the team-oriented organisation
• a quality management system
• a management style
• a cash-flow model
• a budgetary model
• model methods for developing a business strategy
• A unitary versus a pluralistic view of Organisations

Social forces for example involving human values and attitudes affect the organisation and
both influence and are affected by management styles and inter-personal relations. Thus
"social culture" may be modelled/defined and identified within the organisation which may
indicate how power and authority is exercised.

Burns and Stalker compared a bureaucracy (mechanistic organisation) with a model

of an organismic one. Later Harrison in a similar vein offered four models (power, role,
task and personal cultures) to depict concepts of organisation structure and culture. Such
models help us to understand power, roles, task allocation and scope for membership
activity. The models represent collections of identifiable expectations, relationships,
behaviours and attitudes. Harrison's task culture (a.k.a. team, project or matrix
organisation) and his personal culture offer insights into alternative forms of
organisation. A centralised organisation can be compared with decentralised and
distributed forms.

Summary

For business people wishing to turn their slow moving bureaucracy into a dynamic,
competitive organisation, systems theory and concepts and various models of
organisational processes and practices enable deeper analysis of problems and synthesis of
conclusions and solutions

General systems thinking provides terminology which enables us to describe and explain
organisational processes and conditions better. So long as the terminology helps analysis
then fine. Organisational problem- solving requires a 'systems /contingency approach'. It is
evident from the systems analysis and design approaches taken with computer systems
that the hard technology and logical data side of the system has to be set against the
objectives of the organisation and the environment of jobs, people, trades unions and
social-legal frameworks of privacy, data protection and the like.

Any formal "systems" study irrespective computers and information technology requires
clarity about study boundaries, definition of objectives, processes, inputs and outputs and
how the organisation (or part of it) stands in relation to its environment.

It is essential that business people can comprehend business organisations as dynamic

entities of inter-related sub-systems in which processes of risk- minimisation, responses to
environmental change and information manipulation (objective and subjective).
Organisational stakeholders must understand

• the objective-subjective dimensions of decision making

• distinguish blind-assumptions from ability to reach
measured decisions on good information and consideration of
alternatives (albeit that facts and conclusions will still be
selectively reached).

Securing an adaptive, high-performance organisation capable of responding to pressures

for change in a `valued and controlled` way is clearly the task of management today. The
manager's purpose is emphasised when we compare closed, dyfunctionally bureaucratic
organisations (which find it hard to cope with the pressure of a highly competitive
environment) with well-structured, responsive organisations that maintain balanced
organisational performance with contingent responses chance events.

Business Systems:

What is the aim of science?

Can the study of business be accommodated under a scientific umbrella? The aim of
science is to add to the body of available human knowledge so that, in the universe we live
in, we may understand ourselves and phenomena. The aim is to make sense of things - to
explain and predict. Business people, in a sense, are everyday scientists. We need
explanations and understandings to structure and to influence what we do and better
achieve our purposes. There is considerable scope to improve on this definition

How would you improve it?

• Is the study of business a hard or soft science?

• At what level can we study business phenomena: the
world, the trading block, the country, the region, the multi-
national, the institution, the company, the department, the section
or team, the individual, the product, the transaction?
• Are business phenomena concrete or are they socially
constructed - conceived of and imaged by people who believe
them to be real and act on them?

The adoption of a "general systems" framework

The use of general systems concepts and language allows the business scientist to define
and analyse components and relationships in business activity and organisational
behaviour - seeing these "things" more as a whole, in an integrated way. When studying
business phenomena e.g. a corporate merger, we have to keep in sight the whole business
system and its internal and external relationships with other systems and sub-systems (we
might call this a holistic view). Even when we focus on detailed components (atomism -
reducing a system or sub-system to its elemental parts) we need to understand how the
detailed elements fit into the context of the whole business system we are looking at.

So business science seeks to describe and explain elements, structures and behaviours of
business phenomena as a whole and assist us to predict how different sub-elements and
processes work together. It tends to be descriptive and analytic in doing this - but we have
to be careful of the nature of the explanations themselves as interpretations are
subjective. We must be careful of who is explaining, what they chose to explain and how &
why they explain it as they do.

What is a system?

von Bertalanffy defined a system as an organised or complex whole, a purposive entity

consisting of inter-dependent parts. We can describe, analyse and model the structures
and behaviours of such objects.

In a business system we find money, machines and equipment (hard systems). We also
find soft, human elements intervening - feelings, jealousies, prejudices, stereotypes,
ambitions, rivalries, beliefs, wants, needs and politics.

Russell Ackoff in his book, "Re-creating the Corporation" suggests five criteria for a system
to be a system. A system is a whole that contains two or more parts that satisfy the
following five conditions.
 • The whole has one or more defining functions.
• Each part in the set can affect the behavior or properties of
the whole.
• There is a subset of parts that is sufficient in one or more
environments for carrying out the defining function of the whole;
each of these parts is separately necessary but insufficient for
carrying out their defining function
• The way that the behavior or properties of each part a
system affectsits behavior or properties depends on the behavior
or properties of atleast one other part of the system. The way that
the behavior or properties of each part a system affects its
behavior or properties depends on the behavior or properties of at
least one other part of the system.
• The effect of any subset of parts on the system as a whole
depends on the behavior of at least one other subset. . . .
• If the parts of a corporation do not interact, they form an
aggregation, not a system.

Ackoff R, The Democratic Corporation pp. 18-21)

He identifies four varieties of system to serve his line of thinking. These are

• mechanical systems, the wholes nor the parts have

purpose of their own (e.g. a train).
• animate systems, the whole has a purpose but the parts
do not (e.g. a human being)
• social systems, the whole and the parts each have
purposes (e.g. a political party)
• ecological systemsthe whole does not have a purpose
but the parts do (e.g. a forest)

As with any taxonomy these categories are problematic. Ackoff is interested in social
systems, especially corporations.

Business scientists seek a well-informed explanation of things - a "truth". Methods and

conclusions must be open to verification and validation so that the truth of answers to
questions can be established e.g. as:

• Why do business organisations take the shape they do?

• Why do some forms of organisation work better than
others?
• Why are some businesses more successful than others?
• What are the rules and influences governing the way the
parts are connected together? Do they really explain matters?
• Are there universal laws which explain the way businesses
work and if we apply these "rules" can business success
guaranteed?
• What is the relationship between business and the political
and economic systems?
• In what ways do businesses reflect and determine the
characteristics of wider social structures?
• How is business ownership maintained?
• How can the ethical responsibilities of business be defined?
• Are business practices shaped by events over which
business people have little or no control or can business people
influence the nature of environmental demands?

The list is endless but these few illustrate the types of critical inquiry we must pursue. As
well as learning about the specific applications of accounting, marketing or employement
practices, we need to probe the true nature of the business world so as not to take things
for granted.

Contributory Disciplines

Many disciplines contribute to business studies as a subject - economics, moral philosophy,

accounting, psychology and sociology, computing and information sciences, philosophy,
mathematics and statistics. With such a multi-disciplinary focus it is useful for analysis and
explanation purposes to adopt a systems approach.

Problems associated with a Systems Approach

The Problem of the Boundary

Basic systems thinking requires the scientist to define:

what "the system" is that we are studying

We have to delineate the level of the system or part of a system. This may be a division of
a large company or a function such as stock control or a process such as employee
remuneration. Obviously we have small systems within larger ones and systems are linked
with other systems; the banking system, systems of trade, an employment system, the
contract of emplyment.

Such hierarchies (the worker, the department, the firm, the corporation, the industry, the
trading bloc, the universe) can lead us into unmanageable complexity. We therefore have
to be skilled in selecting and delineating the elements and the boundary of the system we
wish to study. This is an inherent problem of taking a systems approach. As business
scientists we must be aware of the level of our perspective or view on business.

Using the notion of a boundary we can specify what is inside the system we are studying,
what is left outside and/or what crosses the system boundary. We define the elements -
the givens and the variables to provide a coherent framework of analysis. We must
recognise the limitations e.g. what we are and are not referencing in our study and what
the consequences are to exclude consideration of something.

Our "rich picture" of, say, the stock management sub-system of a business, should
account for assumptions (in drawing the boundary) and the importance or otherwise of
omitted items.

Define, measure, explain

If we are partial to 'hard science' commitments then we strive to define, measure and
explain the relationships and the elements within our system boundary i.e. vital
components/ingredients and the purposes serve. How concrete are these things? How do
they manifest themselves? How are they felt or feature within the holistic scheme of
things? How do they originate and why do we ascribe such significance to them?

We might be interested in why they are organised and structured as they are, how sub-
parts function together and why components become specialised according to their
associated functional and social processes.

Even if we subscribe more to 'soft science' interpretive commitments - we will still

need to understand how we attach meaning to "boundary" issues: what we accept within
the boundary of a definition and argument and what we may care to leave outside -
because it is plainly not relevant or we choose to discount the significance for reasons of
our own.

Can they (the variables) be measured?

Many of the phenomena e.g. employee motivation - are interpretations, socially
constructed. We thus encounter the problem of abstracted empiricism i.e. seeking to
count and measure things - perhaps by use of questionnaires and statistics - that are not
concrete. We must be careful about the problem of reification:
treatment of an analytic or abstract relationship as though it were a concrete
entity.

Motivation cannot be weighed like sulphur or calculated like stress on an aircraft wing.
However, peoples' opinions, what they say about themselves and others, their
interpretation of the imprtance of things - can be defined and charted. The behaviours
which are influenced by judgement cojnscious or otherwise may be defined and evaluated
in terms of their effect on behaviour e.g. decisions in the market-pace.

A business is a social construct

It is created and developed by someone. It takes objective, tangible form in terms of e.g.
its legal ownership, its buildings, products services, staff and the formal arrangements
they work with.

Yet our perceptions and judgments on many aspects of business behaviour are
subjectively defined. The status and contribution, events and influences that a business
and businesses are associated with are interpreted by analysts (other business people,
customers, theoreticians and politicians). Each person making statements about the form
and behaviour of the business system will be selective in the values, criteria and
assumptions they use.

Business Mission/Purposes and Objectives

We need to ask why the business organisation or system exists. What is its mission or
purpose and what are its objectives? These may be defined in

• the business's articles of incorporation

• or in a mission statement published in an annual report or
communicated to staff.
• Detailed business plans may exist which spell out
objectives and strategic programmes of the organisation as a
whole and the contributions of its various parts.
• Above all the business objectives can be identified from
what key players in the business say and what they do.
• Are declared purposes and operational objectives always in
line?
• Do goals and purposes clearly unite the system by guiding
the behaviour of its members?
• Are the goals and purposes out-dated?
• Who defines them?
• Are they neutral?
• How does power to decide these manifest itself?
• What are the roots of such power?

Organisational objectives are variously defined by these who own or control it or on the
receiving end of product delivery or service. The organisation's outputs (results,
contributions, evaluative measures) are compared with objectives (stated or notional) to
determine organisational success. They are also compared with with similar and perhaps
rival organisations (benchmarking).

Can you define the typical objectives of a business?

Effort is invested in achieving two types of objective to ensure organisational fitness and
readiness to respond to environmental turbulence and uncertaintly (internal and
external):-

• maintenance objectives
• improvement objectives.

Many performance matters relate to cyclical events (patterned) typically resolved by the
budgetary cycle developed as an adaptive response to commonly occuring control and
allocation problems which require standard, risk-minimising procedures. Other objectives
stem from forecasting and analysis of events/trends and comparision against standards.

How stable is the organisation? If it is a homeostatic system in 'dynamic equilibrium with

its environment' then learning and adaptation arguably should occur with minimum alarm
and fluctuation to keep the organisationa overall in balance. Strategic plans, policies and
agreed operational systems represent the results of analysis into the organisation's current
health or status.

In corporate planning terms we could use SWOT analysis (strengths, weaknesses,

opportunities, threats) to appraise corporate performance and contributions of each
organisational function against defined standards of success: profitability, market growth,
use of assets, service development etc. If trends are found to be problematic and
threatening then a planned response can be made with new objectives set to guide actions
of organisational members and with allocation of resources to achieve what has to be
done.

Business Systems - General Functions

Holism and Equilibrium.

Business systems are "synergistic" . In terms of energy created and form of the system
and its elements - the whole is greater than sum of parts. We cannot study a particular
element or sub-system of an organisation in isolation from other systems which are related
to it. These have an influence across the boundary of the sub-system we are studying if we
ignore the influence of these relationships then our explanation of what is or likely to take
place will be flawed.

Systems theory directs attention to the system as a whole and from this we can proceed to
the elements comprising it. We can study an individual element of a business system e.g.
the accounts - but this on its own does not enable us to comprehend the whole. We may
need to look at staff morale or the company marketing activities - to understand the
health of the company. Managers making decisions about resources and efficiency need to
be wary of the environmental context (local and national) and the relationship between
sub-system functioning. Systems management thinking encourages a top-down analysis
and helps avoid

• getting bogged down detail - losing sight at what is being

achieved overall at strategic, tactical and operational levels of
managerial action.
• forgetting the importance of functional relationships and
dependencies within the organisation

Deterministic Systems

In deterministic systems states or activities follow on from each other in completely

predictable ways. Future behaviour can be predicted from the current state and operating
characteristics. A stock control system is relatively deterministic but probabilities of
supply/demand, management oddities and employee behaviour set in. Business people
work hard to develop systems which are useful, organised and predictable. A prime
example is a sales order processing system - essential for smooth processing of sales
transactions from initial order to despatch, invoicing and settling of customer accounts.
Such sub-systems may display considerable "pre-determined behaviour" and operate
according to pre-determined sets of rules.

But a business overall is not deterministic. Those studying business need to consider
whether system bahviours can be predicted using the mathematics of probability for
instance in weighing up the indeterminate factors (customer and supplier behaviour),
political and economic variables etc that impact on the organisation.

The techniques of management science (operational research, simulation, statistics etc)

have not fully taken us to the point of predicting the behaviour of business or
organisational phenomena as a whole. Complexity and the interplay of too many variables
can overwhelm the observer and analyst. Nevertheless the use of techniques which
evaluate business probabilities are useful and widely used.

The Business as an Open System

A business system is an open-system which interacts with and adapts to forces and
pressures emanating from its external environment. The external world may be exhibit
stable or turbulent influences to which the business system must respond if it is to do what
it sets out to do i.e. satisfy its mission and its maintenance and improvement objectives.

Closed systems

A closed system is isolated from its environment and exists independently of it. Nothing
that goes on in the environment influences the behaviour of the closed system.

A self-sufficient space station (once set up) in which all materials are re-cycled without
loss of energy or continuity approximates to such a system as does a closed society (self-
contained community).

Certain sciences deal with closed systems but in the social world - such a closed
framework carries inherent problems. Without adaptation to external influences a closed
community (a business) reaches a point where self-containment becomes stifling and
unhealthy. Businesses not heeding changes in fashion, customer preference, trading
conditions usually fail.

Open System

- is a system which interacts with its environment, receiving new inputs constantly and
responding (learning) to cope . It imports and exports forms of energy and influence but
stability is an important goal. The system may seek to achieve a steady state or
equilibrium nevertheless this is a dynamic equilibrium or homoestasis.

A business is clearly an open system. It cannot shut itself off from its customers, suppliers,
competitors. Many sub-systems within the business such as computer systems, need to be
highly controlled and predictabl, possessing a considerable degree of self-regulation.
However a truly open system needs to be able to cope with controllable and unexpected
inputs and deal with these in predictable and "contingent" ways.

Total Quality Management and 'In Search of Excellence" objectives being pursued by many
businesses facing up to competitive pressure exemplify how new or re-stated ideas and
imperatives are imported into the strategic management of organisations.

Business Systems - Environmental Factors

The notion of environment in general systems thinking is a wild, all-embracing and woolly
concept. "Everything" is in the environment. The environment is all - yet we are interested
in specifics. It is people who decide what is significant in the environment and what is not -
what the 'forces' are that "must" (imperative language) be attended to. Thus prevailing
pictures of what 'the environment' is are socially constructed. Various definitions and
concerns assume the characteristics of propoganda. They are not necessarily neutral
definitions and the nature of the elements that, supposedly are acting on "us" in the
environment, are difficult to define and measure.

Similarly environmental events have to be interpreted and we will often refer to

'environmental forces' of various kinds in our post hoc rational and justification of the
decisions we have made. We blame the environment for action we have taken and the
results of that action.

Finally people e.g. government and powerful decision-makers in business organisations,

may intervene to influence and shape events in the environment - to their own advantage
e.g. speak to the press, lobby for a change, buy up a rival, try to tickle the equities market
up and even cooperate with others to ensure that information on 'the environment' is
accurate rather than uninformed and misguiding decisions by others than can affect the
company's position (vested interests). John Child's concept of 'strategic choice" ,and its
manifestation in terms of managerial behaviour, is significant in ths regard.

So environment is not what it may seem. Certainly if we here the 'green' lobby speak
about environment, they will hold particular values and positions dear to their hearts,
some of which others might accept but some of which others might also rebut.

However a typical, neutral and managerial description of environmental factors and

pressures would cover the following areas (and more). Environmental factors include
social-cultural, technological, economic and financial and political-legal events and
possibilities. These are often referred to by the mnemonics

• S.T.E.P. (social, technical, economic and political factors)

also PEST or
• S.T.E.E.P.L.E (social/demographic, technical, economic,
environmental (natural), political, legal and ethical factors)

The 'biological and adaptive' metaphor comes into play when we argue for business
change. Typically, if the business cannot respond to the pressures and influences of its
environment then it may not survive. It has to adapt. If it serves the needs of clients or
stakeholders and satisfies for example its "market mission" then it may prosper. A
dominant theme in the study of business is that of competition in the market-place.

A business's relationship with its environment is typically founded on its service to key
"customers" and their satisfaction with its performance revealed by buying patterns, new
legislation, party conferences, annual general meetings and stock market prices. Learning
and adaptation occurs in response to stimulus across organisational boundaries. Any
organisation that is too inward looking becomes atrophied and can stagnate. In the
language of general systems theory any system is subject to the process of entrophy.

Business Systems - Boundaries

System boundaries - departmental or functional - are artifical in that someone defines the
boundary of study or action. In organisational problem solving definition of inputs, outputs,
relationships between the sub-systems and their boundary considerations serves to open
up a problem. When we understand it it can then be closed down so it becomes managable
- with realistic solutions being found. The danger for the manager whose perspective in
organisational decision-making is too narrow is that important organisational states and
boundary conditions that have a bearing on decisions to be made become neglected.
Business Systems - Inputs, Process and Outputs

Inputs

Business system inputs involve ideas, time, funding materials, equipment, rules, data and
information, concepts, beliefs and values (physical, human and conceptual). These
contribute to the structuring of the business and are involved in movements across the
business's boundary. Arrangements (people, structures and processes) must be created to
receive and deal with such inputs, determining which are important and how they should
be handled. Thus we can consider how "the receivers" regard such inputs, their urgency
and significance.

The inputs can be represented by:

• entrepreneurial ideas and decisions

• finance
• market and customer information
• available technology (tools, machines, methods, forms of
automation) to use
• social and cultural values and attitudes
• staff abilities and expectations
• events from another system which the business must
receive and respond to e.g. a budget statement, government
pressure, a coup in a client country

Processes

Processes are system arrangements and mechanisms - human and technical - which are
designed and implemented to organise and realise the business's purposes These may be

• functional
• transformational
• information-based,
• social and political
• regulative and control-oriented.

Inputs - materials, specifications, energy and investments are processed (transformed) to

produce outputs - goods (semi-finished and finished), services - results which others
within the system or external to the system want and value. Ideas are transformed.
Information is transformed. Thus we may seek to study the decision-making and creative
processes of an organisation or how even an item of data is up-dated or data aggregated
into a report or graph that provides useful information.

Outputs

System outputs result from the internal operational and transformational processes of the
organisation. Something is done by tthe system to the inputs. The basics of a kitchen,
bread, butter, cheese, a chopping board, knife, a modicum of skill and wrapping materials
and a fancy brand name become a premium sandwich. This sells at £1.60 and cost 55p to
produce.

The outputs may be

• physical (goods and services) or

• conceptual (ideas, influences, information-based outputs)
Imagine that outputs flow from the business into the external environment where they are
received by "stakeholders". In addition when we consider the sub-systems of the
business's internal environment, the outputs from one sub-system e.g. production become
the inputs to another e.g. sales.

In a public sector organisation - the outputs are socially and politically and socially defined.
Yet value for money, cost efficiency and service delivery ratios are also used for
performance measurement, evaluation and resource allocation. We can look at
responsiveness to problems and the success of policies and practices which "the public" (if
identifable) find acceptable and worth paying for. Such outputs relate to social and
community benefits and may be at odds with economic criteria.

• Community services may be sufficient but at what cost?

• Is cost an appropriate criteria?
• What are the dominant prevailing political values?
• Who makes the decision?
• Qui bono?

Business Systems - Feedback, adaptation and control

Decisions can be made to

• maintain activity or
• change what is being done

.... by evaluating the differences between desired and actual performance and results.

To survive and develop, the organisation has to be aware of what it is doing. As an open,
adaptive system the modern business must respond to information communicated across
its boundaries. It needs to evaluate whether its own processes are working as they should,
achieving the objectives and outputs that are required. Without feedback the system
cannot learn and regulate itself.

Feedback information on external or internal circumstances and efficiencies can be

compared with what "should" occur (standards). The organisation may need to correct its
behaviour or change in some way to return to the dynamic equilibrium is seeks.

In this sense those who run the business regulate and anticipate risks, seeking to minimise
the effects of the unpredictable.

Control

The Principia Cybernetica Project defines control as "Choosing the inputs to a system so as
to make the state or outputs change in (or close to) some desired way."