Productivity Improvement

Open Systems Approach

Definition of Terms

There are certain terms which will be used repeatedly in this guide. At the onset these need to be defined so that there is no ambiguity when these terms are used.

Firm, establishment, plant, industry

The firm is an independent economic unit that has as its aim the earning of a profit on capital invested, by offering goods and services for sale. It is an invisible financial unit.

The plant or establishment of a business organization of human and other factors of production, producing goods and services for sale. It is the visible technical unit (factory, ship, mine, etc.).

An industry is the sum of all establishments producing the same or similar goods and services (e.g. all footwear factories together are called the footwear industry)

Profit is the excess of total income over total cost.

The business economics approach

In this article a business economics approach is followed. The problems of the organization are approached from the point of view of a manager or entrepreneur, not of the community.

Not maintaining an approach that emphasizes the manager's / entrepreneur's point of view, would mean the practical usefulness of the approach, from the manager's viewpoint, will be negligible.

For example, some social economists believe that advertising tends to create a monopolistic position for the firm and that is detrimental to the community. An approach that suggested to entrepreneurs or managers that they should not try to create a special market for their products by advertising, would be rejected by business people.

This does not mean that the business person can consistently ignore community interests. If they did so they would eventually bring about their own downfall. In its own interests the firm has to take into account the interests of the employees, clients, suppliers, community and government. (Recent trends in the global economy tend to support this statement.)

However the organization does not completely suppress its own interest in favor of community interests.

The profit motive

In a capitalistic system the goal of any private enterprise is to make a profit. The sections in this article will be oriented from the point view of firms with a profit motive.

Some of you reading this will be employed in organizations that do not have a profit motive. I could cater for both types of organization but this would make heavy going of the article. Since undertakings with a profit motive predominate, with a trend towards more and more privatization, this base model is used.

Most of the analyses and conclusions resulting from this model will be just as applicable to organizations that do not have a profit motive.

Next: The Problems of Complexity, Uncertainty and Change