Open versus Closed Systems

A closed system does not interact with the outside environment. Although few systems actually take this form, some of the classical approaches treated organizations as closed systems. The assumption was that if managers
improve internal processes, the organization would succeed. Clearly, however, all organizations are open
systems, dependent on inputs from the outside world, such as raw materials, human resources, and capital, and
output to the outside world that meet the market's needs for goods and services.
Above figure illustrates the open-system perspective. The organizational system requires inputs, which the
organization transforms into outputs, which are received by the external environment. The environment reacts
to these outputs through a feedback loop, which then becomes an input for the next cycle of the system. The
process continues to repeat itself for the life of the system.
As above Figure shows, a system is a set of interdependent parts that processes inputs (such as raw materials)
into outputs (products). Business inputs typically known as resources include human, physical, financial etc
resources. Most businesses use a variety of human, financial, physical, and informational resources. Manager’s
function is to transform these resources into the outputs of the business. Goods and services are the outputs of
the business. Some of the major components of the external environment include customers, competitors,
suppliers, and investors.