Definition: An open system is a group of elements forming a cohesive whole and allowing some kind of exchange with the external environment. The term slightly varies depending on the field where it is employed as is the case for computer technology, science, and others. But in general, an open system refers to a system that interacts in some way with the exterior.
What Does Open System Mean?
Companies are open systems because they receive various inputs from the outside, they process them internally and then provide products or services to external agents. Indeed, any organization interacts intensively with its environment. It impacts and at the same time is influenced by numerous external elements. Economic conditions such as interest rates, inflation and exchange rates affects the way the organization performs its operations.
Other examples of interaction are the various supplies coming from other organizations to be part of its internal processes. The company affects its surrounding community in some extent, it impacts the geographical market where it operates and generates some kind of output to consumers, government institutions and society in general. In some industries, it might also disturb the environment significantly. Understanding that companies are open system is key to properly analyze external factors that affect the business as well as to define coherent strategies to reach properly to them.
Example
Michael McMillan is the top executive of a new manufacturing firm located in a small village. Before the company was located there, the region main’s economic activity was farming. Mr. McMillan was aware of the existing interactions with the surroundings since many workers lived there and some people thought that the production process could be dangerous to the natural environment. He therefore initiated a strategy to improve the relationships with the village.
He committed to increase the percentage of employees coming from the region and provided education programs for the poorest families. In addition, he opened the production facilities to visits with the purpose of convincing people about the absence of environmental damage. As a consequence, the villagers’ attitude towards the company changed in a positive way and some small entrepreneurs started providing services and goods to the firm.
