Open Systems Are an Interesting Concept - Coursework Example

Open Systems Question 3 Open systems are an interesting concept when it comes to understanding the management of organizations. However, to fully understand open systems we first have to understand systems themselves. A system is an organized collection of parts which have been integrated with each other in order to fulfil an objective. With regard to a company system, a system has inputs which are worked with and worked on to create valuable outputs. For example, in a furniture factory, the wood and the labour along with the machines used to craft furniture become inputs while the output is the finished product i.e. tables, chairs etc. Of course the company itself can have many different subsystems which can have further inclusive elements such as functions, produced and required products, given and received services, component groups and governing individuals. Additionally, if a part of the system is to be changed, the nature of the overall management system may also have to go through a change. Overlap between systems as well as the encasing of systems within systems is also a given in such circumstances. A functioning system may need to exchange information and data among its various subparts to ascertain that they are all aligned with each other and working on a single goal. If a part of the system is weak or working in a different direction, the efficiency of the overall system can be negatively affected therefore communications are essential as the oil which keeps the system flowing smoothly. To facilitate communications, the subsystems may be best set in hierarchies which lead to them being integrated in order to achieve the overall goal of the management system or the production cycle. Each subsystem may also have its own boundaries that make it different and distinct from others around it. Undoubtedly, this also bring about a high level of complexity in subsystems that reflects on the overall system thus in order to reduce the complexity and allow ease of operations, some companies may choose to have open systems for organizational management. An open system is a management system that continually exchanges information and reacts to information coming from the external environment hence it is ‘open’. They are still understood as systems so open systems will continue to have their inputs, production, output, objectives, testing and evaluation. At the same time, information exchange between the system and the external environment means that the information is used as an input to change the system itself and make it more responsive. With a view on globalization, in the past, it might have been possible to create and manage a system for a company which had all inputs as well as outputs located in one city, country or region but it is certainly not the case today (Edwards & Kuruvilla, 2005). We have a world where competition has forced companies to operate on a global scale and a company can have its head office in London, the production facility in China, the research department in Germany and the support services providers in Pakistan (Friedman, 2006). This is simply one impact of the forces of globalisation on inputs for an open system which then has to look at the global feedback than just local. In simple terms the people who work with the forces of globalisation are largely seeking justice and fair play for all concerned parties (Lachapelle, 2005). However, one person’s idea of justice may be very different from another (Baldwin, 2007). For example, the global economic meltdown brought on by subprime lending in America has affected the global economy and a business closing in America could have global consequences as outsourcing of production, the use of cheaper locations for development work and the even the hiring of low cost labour in other locations would be stopped by that same company (Robinson, 2005). To better understand the relation between open systems and the present economic crisis. It would be important to examine the crisis in some detail. The basic issue that has turned into what is being called a crisis by analysts such as Essen (2008) is the simple result of the subprime mortgage lending made by many financial and lending bodies in the US. That led to a panic in the credit market and even made Wall Street feel the effects of this crisis to the point that stock markets experienced tremendous erosion of the capital values of stocks held by various individuals as investors made rapid selling decisions. With regard to systems affecting each other, the present situation is the combined results of high risk decisions and actions which were taken months ago by foolhardy investors trying to get huge returns on their money. Despite open systems for businesses, , the government appears to have remained unaware of the developing situation till it came to a point where high levels of injections into the economy had to be made to prevent a total economic meltdown. Despite these Inputs i.e. the $700 billion package approved by the senate, it may not be enough to reverse all the damage (Skillings, 2008). At the present moment, the economic crisis appears to be in full swing as banks, established financial bodies and even insurance providers have failed. With open systems reacting to the issue, other local and international investors seem to be panicking since it is not certain how the American economy will come out of the recession and how long it would take for complete recovery. Essen (2008) notes that the panic and the crisis itself can be attributed to the lack of checks on the lending market which is supposed to be highly regulated. A lack of regulation and corporate greed led to a situation where the investments made by banks did not get them the desired results. This is certainly a very troubling situation since the open systems of companies are quickly reacting to news coming from the market and uncertainty is only hurting business. The subprime market was seen as a very lucrative market and it was supposed to lead to great profits but the risks seem to have been underestimated if not ignored. In fact, the risks were perhaps even brushed under the table and that has brought the US economy to a point where economic analysts are simply calling it as the “worst financial crisis since the Great Depression (Essen, 2008, Pg. 1)”. The full impact of the whole mess may only be understood many years after it is over but it is Essen (2008) and Garrett (2008) both suggest that the basic cause of the crisis are the recent high risk decisions of different banks who were competing with each other based on the feedback they got from the market. They loaned large amounts of money to borrowers without doing the proper risk evaluations. Instead of looking at the real risks of the investments, the banks were more focused on the likely returns. The managers who were leading these banks seem to have looked more at the short term profits and sales than at the long term risks of giving out such loans (Essen, 2008). Such behaviour defines the manner in which the American market behaves since the market seems to have the open system of reacting more when it comes to short-term performance rather than signs of stable growth. This leads Clendenning (2008) to condemn the greed of American financial institutes and further suggest that American banks have a ‘casino mentality’ since they made the decision to get into the subprime mortgage market without properly analysing the risks involved. Even if the banks understood the risks, the attraction of the financial rewards might have been too great. It must be noted that the crisis was forming during a time of relative economic stability where mortgage brokers recommended to their clients that they should get into mortgages with little cash investment as a down payment. These mortgages were given out without the sellers fully examining the risks associated with the persons they were giving loans to simply because they belonged to the subprime mortgage market. In essence, the fundamentals of good risk management were ignored by the banks and financial institutions and that made them overexposed to risk. The default of risky loans only led to the investments to be made into a lost cause. It is possible that the crisis could have been limited to one or two institutes that had invested heavily in the subprime market but the open systems caused the entire market to be infected since the loans were traded and marketed further as high risk investments. Even international investors bought up these loans with expectations of high rewards. With defaults on the mortgage market, In 2007, the Bear Stearns’ fund collapsed and took down the company with it (Essen, 2008). From stability, simply by reacting to the market and what others were doing, financial bodies went towards instability. The systems within the American government acknowledged this and announced that they would take over Fannie Mae and Freddie Mac which is essentially a bailout as described by Kaletsky (2008) for these bodies. Some analysts have objected to this action since it does not allow market forces to deal with collapsing financial institutes, others such as Skillings (2008) have said that the government is still the best party to look towards if real solution is to be found for the problems in the American economy. It is still the American government and the central banks around the world that can lead the global economic system out of this crisis situation. Antitrust tools which partly nationalise some banks or the government having oversight abilities on the workings of larger financial bodies would certainly prevent such meltdown based in greed from taking place in the future. It must be noted that such a step would be very drastic since that goes beyond the idea of simple financial regulation and brings up the problem of government ownership in what are basically private enterprises. The open systems that take feedback from the world at large see signs in such economic meltdowns and thus may actually slow down or halt production in order to go through the economic recession in low gear. Of course this too has a ripple effect as the recession can deepen with time while cheaper labour resources are exploited to make more profits (Faulkner, D. 2002). Even with open systems for the management of organisations, globalisation has not improved the lives of many people around the world since it may not have supported sustained national development (Kidger, 1991). At the same time, it must be understood that open systems allow for feedback to come from those who oppose the negative effects of globalisation which means that things such as sweatshops and deplorable factory conditions could be on their way out (Laurent, 1986). Even in nations such as China, the idea of living with less is getting old as people migrate from rural to urban areas and find jobs in factories. Bardhan (2006) discusses a twenty year longitudinal study that shows how the Chinese people have improve their lives and from 80%, less than 30% of the Chinese population lives on less than one dollar per day. Globalisation had a role to play in this and it has made China the global producer it is today. In fact, this growth can help companies with open systems react to the developments coming to the world and shift their production output and sales forces to work in different countries that are experiencing a boom rather than a recession. Even though regions such as the EU and the Americas may have been negatively impacted by the recession, there are still places where the market is going strong or will pick up before America and thus companies with open systems might be able to come to terms with the recession quickly. Question 4 A SWOT analysis is a strategic planning tool that evaluates the Strengths, Weaknesses, Opportunities, and Threats faced by a business in any given situation. The end objective of the SWOT analysis must be known or well defined so that the analysis can be made with that objective in mind. The analysis works with both internal and external environmental variables that a company has to face and also the factors that are likely to help or hinder the path of the company towards the objective (CIPD, 2009). The SWOT analysis starts with looking at those attributes and positions of the company which are helpful to achieving the goals and these are known as the strengths of the company. The weaknesses become the points which are harmful or are causing the company to fall from its targets. External conditions that can help the company come to the final objective are seen as the opportunities that the company can exploit while threats are those external risks that can cause the company to miss the target (CIPD, 2009). Once the SWOT analysis is started the strengths, weaknesses, opportunities and threats are all noted and the analyst tries to figure out how the strengths can be built upon and how each weakness can be eradicated. Further, the opportunities presented to the firm need to be explored so that the maximum benefit at the minimum possible cost can be gained from the opportunities that the firm has for itself in the external environment. At the same time, the threats to the company also need to be studied and countered in order for the analyst to gain the maximum benefit from the SWOT analysis (CIPD, 2009). Of course a SWOT may not be carried out by one person alone in a company but rather a group of people from different departments. This would give the SWOT analysis a broader view in order to make sure that every area is covered and no element that should be in the analysis is left out. The basic aim of the SWOT analysis remains to note the key internal as well as the external factors which are important when it comes to getting the desired results. The Internal factors remain the strengths and weaknesses of the company while the opportunities and threats come from the external environment which includes the competition as well as government regulations (CIPD, 2009). It must be noted that each SWOT analysis is unique in the shape that one element that is a weakness in one SWOT may be a strength of the company when the objectives are different (CIPD, 2009). For example, when it comes to developing new products, a great number of personnel with entrepreneurial abilities may be considered as a strength but when it comes to reducing headcount, a high number of employees may actually be a weakness. Even the external factors of opportunities and threats can swap positions when the objectives of the SWOT analysis change for the company. That does not mean that the SWOT analysis is a useless tool since the reality is far from it. By putting the goals of the existing vision of the company and the existing strategic goals of the company as the objective of a SWOT analysis, a company could easily see where they are at a position in time and where they need to be. If the analysis is done correctly, the SWOT can show where there are gaps between the objectives of the company and the current strategy it has adopted as a business path (CIPD, 2009). This can help in defining the key factors which are to be used to create a proper corporate plan for the company as well as to revise the strategic objectives of the firm if the company does not see them happening in its current position. The opportunities and threats to the company can be studied in order to prepare operational, resource management, HRM, and even individual projects management strategies for the company. With these strengths the SWOT analysis also has its own set of weaknesses since it may tend to simple compilation of lists rather than a prioritised system in which the most important aspects are put first. Since all points on the SWOT have equal weight for the purpose of analysis, a small opportunity could be seen equally important as a significant one (CIPD, 2009). To better understand the SWOT a practical example can be given of Dell Inc. which is a computer supplier based in America. The objective of the SWOT is to determine ways in which the company can increase its share of the market in the light of increased competition from companies such as HP. To conduct the SWOT, the strengths, weaknesses, opportunities and threats concerning the situation have to be analysed and one manner in which it could be done is given as an example. Strengths: The biggest strength of Dell is its direct sales model. Dell was not the first company to try this model, but it certainly was the first one to make it a success in the high tech industry. The business model helped accurately identify the needs of the customer and the model made the computer assembly line one of the leanest assembly lines in the world. The focus on this particular model helped dell in developing their supply chain where components are delivered to the company just in time for their assembly (Margulius, 2006). The company ordered the required components only after the customer had placed the order for a system. This facilitated in not only identifying the requirements of the customers but also the individual components that were required by the company for the assembly process. Weaknesses: the biggest weakness faced by Dell is the relative lack of competent international management or international marketing and that has kept it from gaining real market share in the foreign markets. Dell has not been able to replicate their success which they have had in the home market in international terms. Another weakness comes from the departure of James Schnieder who was the famous CFO of Dell who left the company to join a Texas start-up banking firm (Fajt, 2006). The company also lost its top two executives in China, which is the most important growth market for high tech and computers. In a lengthy effort to fill in more than a hundred and fifty senior positions, Dell has brought in people from different companies yet their success and their commitment to the company remains to be seen. Dell’s competitive edge seems to have been directly connected to the efficient supply chain it had and the provision of excellent customer services (Margulius, 2006). However, with the burst of dot com bubble, market growth rate shrank and Dell cut on its labour cost by outsourcing a major portion if support services. The Dell brand that was once considered to have highly efficient and reliable when it came to customer service started seeing customer satisfaction as its weakness and low point. Opportunities: Simple PC systems still make the bulk of computer sales and Dell has diversified its product portfolio through offering different products. However, since the market dynamics have changed, Dell needs to focus again on their fundamental ideology of servicing the requirements of their clients around the world. Apple, and its innovative trend of supplying consumer products as well as computers, has transformed the company and the successful positioning of Apple as a home entertainment company is a testament to the growing market of PCs as entertainment centres (Beckman and Hirsch, 2001). The idea has been picked up by Dell’s competitors such as HP. Even though Dell is not first to the market in this category, it can still capture market share based on their core competency of JIT supply chain management and establishing direct contact with customers (Margulius, 2006). Apple offers a well integrated home entertainment solution while products based on ‘wintel’ machines are still along the lines of assemble your own PC (PC Magazine. 2006). Being in the position the company is, it can target the small but growing market of entertainment PCs if it starts to provide workable and complete digital home entertainment systems. Threats: There are several threats to Dell coming from various competitive players in the computer market of which HP is the primary source of strong competition. Dell has already lost the position of being the world’s biggest computer manufacturer and supplier and has been unable to answer the questions being tabled by investors or the competition in a satisfactory manner. Declining customer satisfaction levels have also hurt the business of the company while SEC probes into the accounting processes at the company have caused the stock to dip (Burt, 2006). Given the situation, the SWOT analysis can point towards several plans of action for Dell. For example, the company can see the need to diversify its interests into other products by aligning themselves correctly with the demands of the market. It can also be seen that Dell needs to focus on consumers for consumer related products as well as PCs for the enterprise market as well as provide total solutions just as Apple Inc. does. These are not the only solutions Dell can derive from the SWOT but it just goes to show how the SWOT can be used. It is certainly possible to end up in a debate about what the SWOT analysis shows and it is also possible to get to a position where there is no clear strategy obtained from the SWOT analysis. Further, the SWOT analysis is not focused on for-profit companies since non-profit organisations as well as government bodies could use the analysis with equal ease. Another disadvantage of SWOT is that it only represents a picture of the company at a point in time and can not be used in crisis situations that develop rapidly. The analysis becomes more applicable when long term strategy is being discussed as well as predefined end states are given before the analysis is started (CIPD, 2009). The negative effects of the SWOT analysis can be countered through several means and one of them is to look at other tools for analysis and evaluation of the given situation of the firm. Tools such as PESTEL analysis are extremely useful when looking at the external situation of the company and while considering what could be the largest or most significant threat to the business of the firm. It is easy to overlook some things with SWOT and easy to ignore SWOT for a long time before the company needs to come back to it. Further, if the SWOT analysis takes an extensive period of time, i.e. a month or two, the situation of the company itself can change in that time rendering the SWOT analysis invalid. The lack of a structure for weighing the issues described in the SWOT analysis is also a weakness that can be countered by weighing how much a strength helps the company or how significant a threat can be. To conclude, the SWOT analysis is nothing more than a tool which has to be used in conjunction with other business tools to give a company the right means with which it can handle the issues facing it. At the end of the day, the tool is only as useful as the people who are using it make it to be. Works Cited Baldwin, T. 2007, Numbers add up for Democrats who want to sink global trade deals, The Times, March 7. Bardhan, P. 2006, ‘Does Globalization Help OR Hurt the World's Poor?’, Scientific American, vol. 294, no. 4, pp. 84-91. Beckman, D. and Hirsch, D. 2001, ‘Mac Is Back in Town’, ABA Journal, vol. 87, no. 8, pp. 70-72. Burt, J. 2006, ‘Hits & Misses’, eWeek, vol. 23, no. 50, pp. 20-22. 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