Firm and its environment:

An environment itself consists of social, economic, political and legal sub-systems show in the firm and its environment figure that was given below.

Figure: A firm and its environment

The significance of the systems concept for the manager is which it helps him/her to identify the critical sub-systems in his/her organization and their inter-relationships along with each other and the environment.

A system always finds an equilibrium state, that is, while all the sub-systems are at an optimum level, in tune along with and at rest with each other, so as to achieve the desired output. In an open system, this level of equilibrium is always dynamic. This is since the environment itself is never static, it is always changing. Because the open system is interacting all the time with the environment, what might have been an equilibrium level today will not be so tomorrow. It is the concern of the manager to find this equilibrium level.