Business as a system

What is system?
A System is composed of related and dependent elements which, when
in interaction, form a unitary whole. It is simply an assemblage or
combination of things or parts, forming a complex whole.”
A system may be either closed or open. A closed system is self sufficient
and does not have interaction with the external environment. A closed
system remains unaffected by external environment. On the other hand,
an open system is in interaction with the environment. Organization is
defined as an open dynamic system. An open system is affected by
external environment.
 Inputs

Goals Processes

Control Results
Mechanism

Feedback Environmen
t

Concept of system
Features of a System
1. Sub-Systems
2. Inputs
3. Transformation
4. Outputs
5. Goal oriented
6. Feedback
7. Inter dependence
8. Dynamic system
9. Complicated

Integration between subsystems

Each business enterprise is itself a system comprising various sub-
systems. These may be- marketing dept., finance dept, sales dept, or
production dept. Further each of these subsystems may have subsystems.
Subsystems of a business are closely related and interdependent. Actions
taken by one sub-system may affect the performance of other sub-
systems. Therefore, coordination & integration among the sub- systems
of a business is essential.

Problems in Integration
1. Differences in objectives of different subsystems or departments
may create problems in creating integration.

2. Heads of different sub-systems, having different opinions for a

similar problem, may hinder the process of establishing integration
among sub-systems.
 3. People working in different sub-systems have different culture,
values and perceptions. Therefore, this may create problem in
integration.

4. Sometimes, individual interests may clash with that of the systems.

Individual may prefer personal benefits. This situation may give
rise to conflict between goals of individuals and that of the system.

5. Lack of trust among the individual's may create problem in

establishing co-ordination.

Ways of Integration

To achieve the objectives of the system as a whole, it is essential to

create integration and co-ordination among the interacting sub-systems.
A business enterprise or the business system must create deliberately
this coordination. Following techniques may be used for establishing
coordination among the various sub-systems of a business
system--
1. Heads of different sub-systems, expert in their field, must be
encouraged to understand the problems of each other.
2. There should be a balance between goals of sub-systems and that
of the system as a whole. Preference should be given to the
achievement of organisational goals in case of rise in conflict
between sub-systems.
3. Effective communication system should be established in the
enterprise. Two way communication system is considered as the
most effective between sub-systems.
4. The inter-relationship and inter-dependence between sub-system
must be made clear to them from time to time.
5. The system and its functioning must be reviewed regularly.
Business and Economic Systems

Business is considered as an economic activity. Therefore, business

system cannot be understood without the study of economic system.
Both economic and business systems have some similarities. The
business and economic system both are concerned with the satisfying
human needs and wants. But there are some differences between
business system and economic system. Business system is a part of
economic system aiming at production and sale of goods and services
needed by the human beings in the society. On the other hand, economic
system has wider scope and is concerned with utilisation of scarce
resources in a manner to provide maximum satisfaction to unlimited
needs of the society.

An economic system consists of the institutions through which resources

are utilized for satisfying the needs of individuals. An economic system
has to give answers to the following basic questions-

1. What to Produce and How much to Produce--Every economy faces

this question. It has to decide that what goods and services be
produced with the scarce resources so that maximum wants of
individuals are satisfied. Economy has to decide as to what wants
can be satisfied and what can be foregone.

After deciding about the goods and services to be produced, it also has
to decide about the quantity of the same to be produced. How much
quantity of capital goods and how much quantity of corsumer goods be
produced? This decision depends upon the availability of resources.

2. How to Produce--The second basic problem of economy is how to

produce. This is concerned with the choice of technique or mode of
production. Different economies use different technologies. For
example, in under-developed countries, labour intensive
technology is preferred in production. On the contrary, in
 developed economies, capital intensive technology is adopted for
producing goods.

3. For Whom to Produce -An economy is also to decide for whom to

produce.The problem deals with the question as to how economy
distributes its total output among different economic units. In other
words, how much share of total production be given to each factor
of production that is wages to labourers, interest to capitalist, rent
to land lord and profit to entrepreneur. In short, this is the problems
of how the economy will distribute its production among
households, firms and government sectors.

The above questions are answered differently by different economic

systems.

However, the business activity will depend upon the decision made by
the society regarding what types of goods and services should receive
priority. As a matter of fact, the above central problems of economy are
tackled on the basis of type of economic system adopted by the
concerned economy

Categories of Economic Systems:

An economic system is a mechanism with the help of which the
government plans and allocates accessible services, resources, and
commodities across the country. Economic systems manage elements of
production, combining wealth, labour, physical resources, and business
people. An economic system incorporates many companies, agencies,
objects, models, and deciding procedures.

Types of Economic Systems

Capitalist economy: In a capitalist system, the products manufactured
are divided among people, not according to what they want but on the
basis of purchasing power, which is the ability to buy products and
services. This means an individual needs to have the money with him to
buy the goods and services. The low-cost housing for the
underprivileged is much required but will not include demand in the
market because the needy do not have the buying power to back the
demand. Therefore, the commodities will not be manufactured and
provided as per market forces.
Socialist economy: This economy system acknowledges the three
inquiries in a different way. In a socialist society, the government
determines what products are to be manufactured in accordance with the
requirements of the society. It is believed that the government
understands what is appropriate for the citizens of the country.
Therefore, the passions of individual buyers are not given much
attention. The government concludes how products are to be created and
how the product should be disposed of. In principle, sharing under
socialism is assumed to be based on what an individual needs and not
what they can buy. A socialist system does not have a separate estate
because everything is controlled by the government.
Mixed economy: Mixed systems have characteristics of both the
command and the market economic system. For this purpose, the mixed
economic systems are also known as dual economic systems. However,
there is no sincere method to determine a mixed system. Sometimes, the
word represents a market system beneath the strict administrative control
in certain sections of the economy.