Discuss the systems concept of management.

Discuss the systems concept of management. Visualize your organization as a system and list the critical sub-systems within it. Explain the interrelationship between these sub-systems, which interlink them.

Answer. Organizations have major subsystems, such as departments, programs, divisions, teams, etc. Each of these subsystems has a way of doing things to, along with other subsystems, achieve the overall goals of the organization. Often, these systems and processes are define by plans, policies and procedures.

The systems approach to management is based on general system theory – the theory that says that to understand fully the operation of an entity, the entity must be viewed as a system. The systems approach to management attempts to view the organization as a unified, purposeful system composed of interrelated parts. Rather than dealing separately with the various parts of an organization, the systems approach gives managers a way of looking at an organization as a whole and as a part of larger, external environment.

From the systems perspective, management should focus on efficiency and effectiveness in each part of the organization, with the understanding that actions taken in one part of the organization affect other parts of the organization. For example, implementing a strategy in the production department of a company will likely affect other aspects of the company such as marketing, finance, and personnel. Each part is tightly linked to other organizational parts; no single part of an organization exists and operates in isolation from the others. Thus, in their day-to-day activities, managers must view the organization as a dynamic whole and try to anticipate the unintended as well as the intended impacts of their decisions.

The approach also views the organization as linked to the external environment. Organizational effectiveness, even survival, depends on the organization interactions with its environment. The enterprise receives inputs, transforms them, and exports the output to the external environment. The very basic model is shown below:




Any business or other organization must be described by an open-system model that includes interactions between the enterprise and its external environment.

Input and Claimants
The inputs from the external environment may include people, capital, and managerial skills, as well as technical knowledge and skills. In addition, various groups of people will make demands on the enterprise. For example, employees want higher pay, more benefits, and job security. On the other hand, consumers demand safe and reliable products at reasonable prices. Suppliers want assurance that their products will be bought. Stockholders want not only a high return on their investment but also security for their enterprise. Federal, state, and local government depend on taxes paid by the enterprise, but also expect the enterprise to comply with their laws. Similarly, the community demands that enterprise be “good citizens”, providing the maximum number of jobs with a minimum of pollution. Other claimants to the enterprise may include financial institutions and labor unions; even competitors have a legitimate claim for fair play. It is clear that many of these claims are incongruent, and it’s the manager’s job to integrate the legitimate objectives of the claimants.

The Managerial Transformation Process
It is the task of managers to transform the inputs, in an effective and efficient manner, into outputs. Of course, the transformation process can be viewed from different perspectives. Thus, one can focus on such diverse enterprise functions as finance, production, personnel, and marketing. The most comprehensive and useful approach for discussing the job of managers is to use the managerial functions of planning, organizing, staffing, leading, and controlling as a framework for organizing managerial knowledge.

The Communication System
Communication is essential to all phases of the managerial process for two reasons. First, it integrates the managerial functions. For example, the objectives set in planning are communicated so that the appropriate organization structure can be devised. Communication is essential in the selection, appraisal, and training of managers to fill the roles in this structure. Similarly, effective leadership and the creation of an environment conducive to motivation depend on communication. Moreover, it is through communication that one determines whether events and performance conform to plans. Thus, it is communications that makes managing possible.

The second purpose of the communication system is to link the enterprise with its external environment, where many of the claimants are. For example, one should never forget that the customer, who is the reason for the existence of virtually all businesses, it is outside a company. It is through the communication system that the needs of customers are identified; this knowledge enables the firm to provide products and services at a profit. Similarly, it is through an effective communication system that the organization becomes aware of competition and other potential threats and constraining factors.

External Variables
Effective managers will regularly scan the external environment. While it is true that managers may have little or no power to change the external environment, they have no alternative but to respond to it.

Outputs
It is the task of managers to secure and utilize inputs to the enterprise, to transform them through the managerial functions- with due consideration for external variables- to outputs.

Although the kinds of outputs will vary with the enterprise, they usually include many of the following: products, services, profits, satisfaction, and integration of the goals of various claimants to the enterprise.

The organization must indeed provide many “satisfactions” if it hopes to retain and elicit contributions from its members. Contributions from its members. It must contribute to the satisfaction not only basic material needs (for example, employees’ needs to earn money for food and shelter or to have job security)but also of needs for affiliation, acceptance, esteem, and perhaps even self-actualization so that one can use his or her potential at the workplace.

Another output is goal integration. The different claimants to the enterprise have very divergent- and often directly opposing objectives. It is the task of managers to resolve conflicts and integrate these aims.

Reenergizing the system
Finally, it is important to notice that in the systems model of operational management some of the outputs become inputs again. Thus, the satisfaction of employees becomes an important human input. Similarly, profits the surplus of income over costs, are reinvested in cash and capital goods, such as machinery, equipment, buildings, and inventory.

Each organization has numerous subsystems, as well. Each subsystem has its own boundaries of sorts, and includes various inputs, processes, outputs and outcomes geared to accomplish an overall goal for the subsystem. Common examples of subsystems are departments, programs, projects, teams, processes to produce products or services, etc. Organizations are made up of people -- who are also systems of systems of systems -- and on it goes. Subsystems are organized in an hierarchy needed to accomplish the overall goal of the overall system.

The organizational system is defined by, e.g., its legal documents (articles of incorporation, by laws, roles of officers, etc.), mission, goals and strategies, policies and procedures, operating manuals, etc. The organization is depicted by its organizational charts, job descriptions, marketing materials, etc. The organizational system is also maintained or controlled by policies and procedures, budgets, information management systems, quality management systems, performance review systems, etc.

EXAMPLE: ZENITH COMPUTERS
As a computer manufacturer, Zenith computers is an open system that actively interacts with its environment. Active interaction means that Zenith both obtains resources from and provides resources to its environment. For example, in order to function, Zenith must obtain inputs from the environment. The company needs motivated and skilled employees with the ability to design and manufacture innovative, high-quality personal and business computers. Zenith obtains this resource from the environment- specifically from the graduating classes of universities nationwide, from competitors, and from other organizations.

Financial resources (money) are inputs needed to build manufacturing facilities, to fund Zenith R & D efforts, and to meet any number of other expenses. Zenith obtains funds from the environment – from banks, other lending institutions and from people who buy shares of Zenith’s stock. Raw material (e.g., computer parts) is obtained from outside suppliers in the environment. Information about the latest computer product technology and about the latest products developed by Zenith’s competitors is also needed. Information is obtained from the environment; that is, from research journals, computer conferences, and other external contacts.

These inputs are employed, used, coordinated, and managed in a transformation process that produces output- in this case, personal and business computers. However, the company’s task is not complete. Zenith provides this resource (output) to the environment by delivering its computers to retail outlets for sale to customers. Does the company survive? Only of the customer reacts to Zenith’s computers and decides to purchase the product. The customer’s decision to buy or look for alternatives (for an IBM, HP, or HCL) provides Zenith with the feedback.

If the feedback is positive (customer buy Zenith computers), the environment provides a critical input to Zenith - cash that the company used to obtain inputs from the environment, such as quality employees, materials, and knowledge. Negative feedback provides Zenith with a second problem. Regardless, Zenith must closely monitor feedback and act upon it (e.g., changing a failing product’s design or features based on customer response). As an open system in a dynamic environment, Zenith cannot afford to ignore the environment. Neglecting developments in the environment (e.g., technological innovations, competitors’ moves) will, over time, doom the company.