The systems approach is useful in studying business organisations because of the following reasons:

1. Systems approach provides a refreshingly new conceptual scheme for the analysis of business organisations:

The main thrust of the systems approach is to view a business organisation as an open system in constant interaction with its environment.

Traditional organisational theorists regarded organisations as relatively closed systems and concentrated on their internal functioning and processes to the neglect of their interaction and adaptation with the external environment. Traditional theorists took a deterministic and mechanistic view of business organisations in contrast to probabilistic and organic nature of business organisations and their behaviour.

2. Systems approach embodies integrative and unified thinking reasoning and problem solving:

The systems approach embodies integrative and unified thinking insofar as it tells us that a business organisation and its sub-systems can be analysed only in relation to each other and to the external environment. This is because a business organisation is a dynamic and a complex system of a hierarchy of sub-systems and is a sub-system of a larger environmental system.


Since the business organisation and its sub-systems are characterised by a network of interactions and linkages any change in a sub-system tends to have a chain reaction on other sub-systems. Systems and sub-system behaviour is a function of each other.

This implies that organisational situations, problems, and processes are not to be considered in a fragmented, isolated, and piecemeal manner. A purely sub-system orientation leads to sub-optimality in results and behaviour. The systems approach seeks to combine analysis and synthesis of phenomena at several successive levels.

Systems thinking starts from identification and recognition of system elements in a given problem. If the problem is leadership competency, some people may think globally but act locally. Such leaders or managers consider the potential consequences of their decisions on other parts of larger systems.

3. Systems approach recognises business organisations as socio-economic-psycho-political entities designed to achieve multiple set of objectives:

This is so because the systems approach emphasises the interrelations and interlink ages between the organisational units on the one hand and organisation and its external environment on the other. The objectives of a business enterprise may relate to:


(i) inputs—aiming at gaining a command over the resources and other inputs for ensuring their steady flow at reasonable prices, assurance about their quality and reliability;

(ii) process—aiming at efficiency, high productivity, minimum wastage, establishment of effective work procedures and systems, and so on in processing (transforming) inputs into output with the help of equipment, technology, human effort, and skills in a systematic manner;

(iii) output—aiming at providing customers with proper goods and services, breadth of product lines, product design, brand differentiation, quality and price ranges, the frequency of changes in styles and models, the type of distribution outlets through which the products are to be sold, and so on;

(iv) system— aiming at ensuring survival, stability, growth, autonomy, adaptability and flexibility, and competitive strength of the business enterprise; and


(v) societal—aiming at creating a proper climate to enable the employees and workers to develop and utilise their skills and talents in a productive and satisfying manner, and inculcating socially and ethically responsible behaviour.