Understanding Business Systems and Processes

Posted on Aug 28, 2024 in Economy

Ramsay’s (1975) Definition of System

A set of elements in permanent dynamic interaction, organized to achieve a particular purpose. Key features include:

Features of a System

  1. Feedback: Allows for review and improvement.
  2. Evolution: Systems change and evolve over time in relation to their environment.
  3. Transformation: Systems are not destroyed, but rather transformed, with elements always remaining.
  4. Homeostasis: Tendency towards equilibrium.
  5. Equifinality: The process is as important as the result.
  6. Totality: The system has a distinct identity, defined by its components. Organizational culture, for example, identifies a company, and changing a component changes the identity.

Basic Systems & Processes

1. Purchasing Process

Initiated by a need (input), this process involves a purchase order, authorization, stock verification, supplier selection, order control, and culminates with merchandise arrival and verification.

2. Payment Process

This process involves verifying fulfillment of the order, issuing and authorizing a payment order, and finalizing payment to the supplier.

3. Sales Process

Beginning with a request, this process includes order verification, credit checks, billing, delivery, and customer confirmation.

4. Collection Process

Triggered by the payment terms, this process involves the accounting department handling payments based on the invoice.

5. Production Process

This process varies depending on the system applied:

  • System Production
  • Continuous Production (e.g., oil, petrochemicals)
  • Batch or Order Production
  • Assembly Production
  • Service Production (interaction between staff, location, and customers)

Optimizing a Process

  1. Define Boundaries: Identify the start and end points to limit and reduce stages.
  2. Visualize Flow: Diagram the process from left to right for review.
  3. Eliminate Redundancy: Remove unnecessary tasks.
  4. Analyze Decision Points: Identify potential bottlenecks where decisions are made.
  5. Utilize Control Tools: Employ tools like SWOT analysis to identify strengths, weaknesses, opportunities, and threats.

SWOT Analysis

Focuses on identifying internal strengths and weaknesses, as well as external opportunities and threats. Crucially, it helps pinpoint a company’s competitive advantages (strengths) and areas for improvement (weaknesses).

Product/Market Analysis

Ansoff Matrix

A tool for strategic planning, considering market penetration, market development, product development, and diversification.

BCG Matrix

Analyzes a business portfolio based on market share and market growth, categorizing products as Question Marks, Stars, Cash Cows, or Dogs.

Attraction Sector Risk

Factors influencing market attractiveness:

  1. Market Size
  2. Market Growth
  3. Pricing Potential
  4. Product Life Cycle Stage
  5. Buyer Concentration
  6. Segmentation Potential
  7. Vulnerability to Imitation

Competitive Position

Factors influencing a company’s competitive standing:

  1. Market Share
  2. Product Line Breadth
  3. Sales and Distribution Network
  4. Responsiveness
  5. Research and Development Capabilities

Financial Considerations

Break-Even Point

The point where total revenue equals total costs.

Fixed Costs

Costs that remain constant regardless of production volume.

Variable Costs

Costs that fluctuate with production volume.