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The systems concept in marketing : a survey of the channels of distribution aspect 1966

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THE SYSTEMS CONCEPT IN MARKETING: A SURVEY OF THE CHANNELS OF DISTRIBUTION ASPECT by LEWIS HARRY WOOLMAN B.Com., University of B r i t i s h Columbia, 1964 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION in the fa c u l t y of GRADUATE STUDIES We accept t h i s thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA May, 1966 In presenting t h i s thesis i n p a r t i a l f u l f i l m e n t of the requirements fo r an advanced degree at the University of B r i t i s h Columbia, I agree that the Library s h a l l make i t f r e e l y available f o r reference and study. I further agree that permission f o r extensive copying of t h i s thesis f o r scholarly purposes may be granted by the Head of my Department or by h i s representatives. It i s understood that copying or publication of t h i s thesis for f i n a n c i a l gain s h a l l not be allowed without my written permission., Department of Commerce and Business Administration The University of B r i t i s h Columbia Vancouver 8, Canada May 6, 1966 ABSTRACT A r e l a t i v e l y new body of l i t e r a t u r e dealing with the concept of system has become more noticeable on the horizons of business thought i n recent years. At the same time, some of t h i s new systems l i t e r a t u r e has begun to permeate marketing thinking and i s being r e f l e c t e d i n the marketing l i t e r a t u r e . This thesis i s concerned with surveying both the systems and marketing l i t e r a t u r e s i n an attempt to esta b l i s h some consensus as to the usage and understanding of the systems concept when applied to marketing,, Due to the very broad possible nature of such a survey, only channels of d i s t r i b u t i o n are involved i n a depth surveying. Necessarily, however, the concept of "mar- keting system" has to be developed i n order to integrate the channels of d i s t r i b u t i o n l i t e r a t u r e with that of marketing and to provide a useful f i r s t step i n integrating the systems concept into marketing thinking. The research question involves inve s t i g a t i o n of how the term "system" i s employed i n the marketing l i t e r a t u r e dealing with channels of distribution,, The methodology employed to conduct the survey i n - volves three major and c l e a r l y d i s t i n c t steps. In the f i r s t step the l i t e r a t u r e dealing with the concept of system i s surveyed ( i i ) and an attempt i s made to estab l i s h a consensus as to the general content of that body of writings,, This f i r s t step i s necessarily b r i e f and, while i t i s not contended that a consensus from the l i t e r a t u r e i s established, at least a po- s i t i o n i s taken of describing the nature, meaning, and content of systems1,, The second step i s a t r a n s i t i o n a l one involving an integration of the systems l i t e r a t u r e with the marketing l i t e r a t u r e . Thus, a broad framework i s established to permit a more detailed integration of p a r t i c u l a r aspects of market- ing with the systems l i t e r a t u r e . The l a s t step involves a somewhat more detailed survey of the l i t e r a t u r e dealing with channels of d i s t r i b u t i o n that appears to u t i l i z e some aspects of the systems concept. This l i t e r a t u r e i s appraised and evaluated and some statements are made as to how such writings can be improved and c l a r i - f i e d . The conclusions that t h i s thesis presents are gene- r a l i n nature. A f i r s t step i n integrating the marketing l i t - erature that can employ the systems concept i s provided. At the same time, a great many i r r e g u l a r i t i e s and inconsistencies are c l a r i f i e d and some attempts made to correct them. Some suggestions are made as to topics i n marketing requiring elabo- ( i i i ) r a t i o n before i t i s possible to talk extensively and meaning- f u l l y of the concept of marketing channel systems. F i n a l l y , some tenative hypotheses are postulated as to usage of systems concepts i n marketing. (iv) TABLE OF CONTENTS Chapter Page I. INTRODUCTION 1 A. FOREWORD 1 B. AN INTRODUCTION TO THE SYSTEMS CONCEPT 2 C. RESEARCH QUESTION AND RESEARCH OBJECTIVE 6 Dji REASONS FOR MAKING THE STUDY 8 E-i LIMITATIONS OF THE SURVEY 10 ORGANIZATION OF THE THESIS 11 I I . AN ABSTRACT OF THE CONCEPT OF SYSTEMS AND ITS ROLE IN BUSINESS THEORY FORMULATION 14 A. , TOWARDS CLARIFYING THE CONCEPTS OF THE SYSTEMS APPROACH AND SYSTEMS 14 Bv THE STRUCTURE OF SYSTEMS LEVELS 15 C; A SPECIALIZED DEFINITION OF SYSTEM 21 D. DEFINITION AND DESCRIPTION: THE SYSTEMS APPROACH 23 1. D e f i n i t i o n : The Systems Approach 23 2„ The Relevance of the Systems Approach for Business 25 3. The Relevant Components i n the Analysis of Systems 25 EG> THE ROLE OF THE SYSTEMS APPROACH IN CONCEPTUALI- ZATION OF BUSINESS SYSTEMS 27 1. D e f i n i t i o n and Description: Understanding Systems Concepts Through the Systems Approach 30 2, Business As a System: The Reasons For 32 (iv) Chapter Page I Iii (Continued) 3. Purpose: The Systems Approach 37 4. D e f i n i t i o n s and Methodology: I l l - S t r u c t u r e d Business Systems 39 F; AN AMPLIFICATION OF THE SYSTEMS APPROACH 44 1. The Necessary Elements i n the Systems Concept 44 2. System Malfunctions 47 3. "Process" as a Special Component i n Systems 48 4. Types of Systems 48 a. Physical and Abstract Systems 48 b. Natural and Man-Made Systems 52 c. Man-Machine Systems 56 5. The Concept of Total System 56 6. The Classes of Components of Systems 57 a. Input, Process, and Output 57 b. Feedback-Control 58 GV SOME SYSTEMS DEFINITIONS 60 I I I . TOWARDS AN UNDERSTANDING OF THE TERM "MARKETING SYSTEM" 63 A; THE CONCEPT OF MARKETING SYSTEMS DEFINED 63 1. Ralph Breyer 64 2. Reavis Cox 65 3. Wroe Alderson 66 4. William Lazer and Eugene Kelley 69 5. George Fisk 70 6. Summary 71 B ' i A NECESSARY CHANGE IN THE DIRECTION OF THE STUDY 75 (v) Chapter Page IV; THE NATURE AND CHARACTERISTICS OF MARKETING CHANNEL SYSTEMS 78 At THE MEANING OF CHANNELS AS MARKETING SYSTEMS 78 1. D e f i n i t i o n of Channels as Systems 78 a. E. J . McCarthy 78 b. A. W. Shaw 79 c. Ivan Wright and Charles Landon 80 d. V a i l e , Grether, and Cox 81 e. Converse and Jones 82 f . V. F. Ridgeway 83 g 0 Wroe Alderson 84 h. Summary and Conclusions 85 B; THE CHARACTERISTICS OF MARKETING CHANNEL SYSTEMS 87 1. Lazer and Kelley 88 2. McCammon and L i t t l e 90 3. Systems Objectives of Marketing Channels 94 4„ The Scope and Complexity of Marketing Channel Systems 95 5« Competition and Change i n Marketing Channel Systems 96 6. Summary and Conclusions 96 Ci MODELS OF MARKETING CHANNEL SYSTEMS 99 l e The Role of Systems Models 99 2. The Approaches to Construction of Marketing Systems Models and the Uses of Marketing Models 100 3. Mathematical Simulation of Marketing Channels 101 (vi) Chapter Page IV; (Continued) a. Forrester 1 0 1 b. Balderston and Hoggatt 1 0 3 c. Summary and Conclusions 1 0 4 4 . Verbal Descriptions of Channel Systems Models 1 0 5 V. THE PROCESS ELEMENT IN MARKETING CHANNEL SYSTEMS 1 0 8 A. DEFINITION AND DISCUSSION: THE MARKETING PROCESS 1 0 9 B. THE MARKETING FUNCTIONS AS PROCESS ELEMENTS 1 1 1 l e Bucklin 1 1 2 2 . McGarry 1 1 5 3 . V a i l e , Grether, and Cox 1 1 6 4 . Wroe Alderson 1 1 8 5 . A. W, Shaw 1 2 0 6 . Duddy and Revzan 1 2 1 7 . R o F. Breyer 1 2 4 8 . Clark and Weld 1 2 4 O i SUMMARY AND CONCLUSIONS 1 2 5 VI. INPUT-OUTPUT ANALYSIS IN CHANNEL SYSTEMS 1 2 8 A. A PERSPECTIVE FROM ECONOMICS 1 2 8 B. THE CONTRIBUTIONS OF MARKETERS 1 2 9 1 . George Fisk 1 3 0 2 . Duddy and Revzan 1 3 1 3 . Beckman 1 3 2 4 „ Wroe Alderson 1 3 4 5 . Hollander 1 3 6 6 . Cox, Goodman, and Fichandler 1 3 7 ( v i i ) Chapter Page VI. (Continued) C. SOME RELATED WRITINGS 138 1. Stewart and Dewhurst 139 2. H. Barger 139 3. Buzze l l 140 4. Waugh and Ogren 140 DJS SUMMARY AND CONCLUSIONS 141 VII'. THE ROLE SYSTEMS THINKING PLAYS IN MARKETING CHANNELS LITERATURE: SUMMARY AND CONCLUSIONS 144 A>. SUMMARY. 144 B. CONCLUSION 147 G. SOME TENATIVE HYPOTHESES 149 ( v i i i ) CHAPTER I INTRODUCTION A. FOREWORD In recent years a new and growing body of l i t e r a - ture dealing with the concept of system has begun to permeate marketing thinking. The new l i t e r a t u r e i s becoming increasingly more noticeable and, at the same time, more d i f f u s e and more confusing. In general, a lack of consensus as to the meaning and content of the systems concept seems to be evident. When applied to marketing, the new concept of system appears to be incompletely or improperly used. Such a s i t u a t i o n has not helped a p o t e n t i a l l y very useful concept to be of service i n furthering an understanding of marketing. If the above i s true, i t would seem to be very help- f u l i n understanding the growing body of l i t e r a t u r e dealing with systems i n marketing i f a survey were made of the marketing l i t - erature. Such a survey would help to c l a r i f y and to integrate 1 2 the marketing l i t e r a t u r e with the systems l i t e r a t u r e . Thus, some consensus might be established as to the meaning and con- tent of the systems concept when applied to marketing. While such a broad survey would be extremely valu- able, the scope of such a study would be so wide as to render i t almost unmanageable i n length. Thus, the survey presented i n t h i s paper w i l l place p a r t i c u l a r emphasis on the l i t e r a t u r e dealing with channels of d i s t r i b u t i o n . By placing the concen- t r a t i o n on one topic area, a useful f i r s t step i s provided i n integrating the systems l i t e r a t u r e with that of marketing. Channels of d i s t r i b u t i o n were chosen for study be- cause of t h e i r seemingly close relevance to the concept of sys- tem. One of the tasks of the survey presented i n these pages w i l l be to compare the marketing l i t e r a t u r e dealing with channels of d i s t r i b u t i o n to that of systems. Thus, the anticipated c l a r i - f i c a t i o n and integration of the marketing l i t e r a t u r e using the systems concept w i l l be begun. Br. AN INTRODUCTION TO THE SYSTEMS CONCEPT Writers and researchers generally concerned with systems theory usually define a system as being a group or c o l - l e c t i o n of i n t e r r e l a t e d and interdependent components or a c t i v i - 3 1 2 t i e s , often synergistic i n nature. The synergistic aspect i s usually present i n systems d e f i n i t i o n s since i t i s proposed that the t o t a l e f f e c t of the system i s greater than the sum of the e f f e c t s of the parts taken i n d i v i d u a l l y . Kenneth Boulding has postulated that systems e x i s t at d i f f e r e n t l e v e l s : CLASSIFICATION OF SYSTEM LEVELS 3 4 Level B r i e f Description Example 1 S t a t i c system Picture 2 Mechanical or clockwork Automobile or clock 3 Cybernetic or feedback Computer 4 Basic throughput or self-maintaining Amoeba system 5 Genetic-societal or plant A l l types of plants Dr. L. Moore, Faculty of Commerce and Business Administra- t i o n , The University of B r i t i s h Columbia, i n a currently unpub- lished a r t i c l e , "The Systems Concept; A Key to Organizational Effectiveness," A p r i l 8, 1966. 2 The s y n e r g i s t i c aspect of systems i s f e l t to be highly im- portant to t h i s paper since, as w i l l be developed i n Chapter IV, the e f f e c t of a channel system must be more than the e f f e c t s of the i n d i v i d u a l agencies taken separately, otherwise there would appear to be no reason f o r these agencies to work together. One of the s y n e r g i s t i c e f f e c t s may be, among others, the creation of p r o f i t s . These points are discussed on pages 31 to 37 i n c l u s i v e . 3 Boulding, K.E., "General Systems Theory—The Skeleton of a Science," Management Science, Vol. 2, No. 3, A p r i l , 1956, pp. 202- 205. 4 The concept of l e v e l s of systems i s further developed on page 15. 4 Level B r i e f Description Example 6 Animal l e v e l (greatly increased mobi- Animals, not l i t y and sp e c i a l i z e d perceptive devi- including humans ces such as eyes and ears) 7 Human (capable of reasoning i n past, Human beings present, and future; capable of ima- gery) 8 Social organizations Corporations, m i l i - tary, government, other i n s t i t u t i o n s 9 Transcendental systems Universe Having given a basic d e f i n i t i o n and c l a s s i f i c a t i o n of systems, the writer proposes that a more spe c i a l i z e d d e f i n i - t i o n i s f e l t to be necessary because systems i n marketing are of interes t i n this paper and i t appears reasonable to assume that these systems exist on four l e v e l s : the mechanical, the cyber- n e t i c , the self-maintaining, and the s o c i a l organizational systems." Thus, the d e f i n i t i o n employed i n t h i s paper i s as follows: "System" i s s p e c i f i c a l l y held to mean an ongoing process of related a c t i v i t i e s or tangible and intangible objects i n motion, in; process, or i n a state of change. In addition, to permit the system d e f i n i t i o n to become more applicable to business, the writer includes a basic objective of systems i n business i s to make possible, either d i r e c t l y or i n d i r e c t l y , attainment of the goals of business. 5 Refer page 21. 5 5 This addition was f e l t to be necessary to allow establishment of a c r i t e r i o n that could be employed i n appraising systems and t h e i r a p p l i c a b i l i t y to marketing channels of d i s t r i b u t i o n . ^ Peculiar to the above very b r i e f d e f i n i t i o n of sys- tem, and to some other d e f i n i t i o n s that w i l l follow, i s the necessity to present the d e f i n i t i o n s without elaboration. Where necessary, footnotes w i l l be included to indicate f o r the reader where he might obtain c l a r i f i c a t i o n and amplification i n other parts of t h i s survey. The practice of presenting the d e f i n i t i o n before discussing the subject was required to permit the needed communication of the meanings the writer attaches to key con- cepts. The reader should r e a l i z e , however, that the l i t e r a t u r e resembles a muddled conglomeration of meanings f o r most concepts connected with, or related to, systems. Caution should be exer- cised i n reading t h i s survey since the d e f i n i t i o n s presented i n i t have been compiled from surveying the l i t e r a t u r e but do not represent a consensus. Some other basic d e f i n i t i o n s are required before pro- ceeding further: 1. Marketing channels of d i s t r i b u t i o n are sequences of agen- cie s and a c t i v i t i e s through which products flow i n the mutual attainment of customer s a t i s f a c t i o n and business The writer considers marketing to possess subgoals that f i t within the broader set of goals employed by business i n general. The d e f i n i t i o n of system i s elaborated upon i n pages 21, 25, 26, and 32. 6 objectives (e.g:. the arrangement of warehouses and dealerships serves as a p a r t i a l channel f o r the d i s - t r i b u t i o n of automobiles) i.! 2 . A systems approach i s an approach used when considering a group of a c t i v i t i e s or objects i n an attempt to de- termine i f the a c t i v i t i e s are related 1* 1 Thus, one i s attempting to determine whether the systems concept Q might apply. 0 3i . "Process" i s a sequence of events leading toward some goal. Thus, the term "process" may also be used i n t e r - changeably with the term " a c t i v i t y " when in t e r a c t i o n between the components of systems i s what i s meant by " a c t i v i t y . " A process, however, i s a kind of subsystem i n that i t i s a system without the feedback-control com- ponent.^ Oi RESEARCH QUESTION AND RESEARCH OBJECTIVE The research question with which t h i s survey w i l l deal i s : 7 Marketing channels of d i s t r i b u t i o n are defined and d i s - cussed i n more d e t a i l i n Chapter I I I , p a r t i c u l a r l y pages 78 to 87 in c l u s i v e . 8 Ppy 23 f f . Ppi. 4 4 - 6 2 i n c l u s i v e 7 How is the term "system" employed in the marketing literature dealing with channels of distribution? The approach taken to deal with the research question involves consideration of marketing distribution channels on various systems levels,, If channels may be broken down into groups of activities, then each group is held to be a system level. The very broad definition of marketing channels of dis- tribution involving different levels of systems is utilized so that a wider framework may be evaluated,. The objective of this paper becomes, then, to present an exploratory survey that will permit a general evaluation of some of the more pertinent writings dealing with the term "sys- tem" as applied to marketing channels of distribution-. The above objective involves consideration of four subobjectives: 1. To determine how the term "system" is used in the market- ing literature dealing with channels of distribution. 2. To evaluate and criticize the usage of the "systems" term, and related concepts, as employed by a sample of marketing writers'.1 3 . To present a framework for appraising the marketing l i t - erature dealing with channels of distribution, as systems, by organizing the framework around the classes of compo- nents of systems—inputs, processes, outputs, feedback- control, and restrictions. 8 4 . To present some summaries and conclusions f o r each c l a s - s i f i c a t i o n of components of systems, and f o r the more general framework, so that a study of greater d e t a i l may be attempted by other investigators. These four subobjectives are chosen as constraints on the survey i n order to keep the survey oriented toward the main objective. The f i r s t two subobjectives are self-explanatory and involve the basic issues with which t h i s survey w i l l deal. That i s , d e f i n i t i o n , evaluation, and c r i t i c i s m are necessary steps i n exploring the meaning and uses of the term "system" and i t s related concepts>i The t h i r d subobjective employs the components of systems as the basic factors upon which a survey of the meaning and use of the system concept may be b u i l t . 1 0 The l a s t subobjective makes e x p l i c i t the need to es t a b l i s h a general framework so that analysis, appraisal, and c r i t i c i s m of t h i s survey and other writings dealing with systems i n market- ing may be f a c i l i t a t e d . D. REASONS FOR MAKING THE SURVEY The main reason that prompted the writer to make th i s survey was the ubiquitousness of the term "system" i n the 1 0 The classes of components of systems are defined and dis- cussed on page 4 4 . 9 marketing literature-. The d e f i n i t i o n of the term seems to vary from writer to writer. If possible, a consistent meaning and usage of the term would seem to be warranted i n order to estab- l i s h some consensus. On the surface, i t would appear that the application of systems and related concepts to marketing would greatly aid understanding and serve as an integrating framework f o r building marketing t h e o r y . 1 1 Certainly a statement such as Boulding makes i s very tempting to induce one to support the systems concept when he states: General Systems Theory i s the skeleton of science in the sense that i t aims to provide a framework or structure of systems on which to hang the f l e s h and blood of p a r t i c u l a r d i s c i p l i n e s and p a r t i c u l a r subject matters i n an orderly and coherent corpus of knowledge. 12 The d i f f i c u l t y inherent i n making operational such statements as Boulding*s l i e s i n determining just what i s meant by the systems concept. Some d e f i n i t i o n and c l a r i f i c a t i o n i s necessary. After some preliminary surveying of the topic of systems, the writer found that the meaning of the systems term was defined i n anything but a uniform manner. The necessity to define and evaluate some of the l i t e r a t u r e , even on a b r i e f survey basis, i s f e l t to be a contribution. ~± For an excellent discussion of systems i n marketing see Fisk, G;, "The General Systems Approach to the Study of Marketing," The S o c i a l R e s p o n s i b i l i t i e s of Marketing, W.Dw Stevens (ed.), The American Marketing Association, Ann Arbour, Michigan, 1962. x * Boulding, K.E'., "General Systems Theory—A Skeleton of Science," Management Science, I I , 3 ( A p r i l , 1956), p. 208. 10 A t h i r d reason involves the fac t that more and more l i t e r a t u r e i s becoming available to help marketing management understand the marketing processes of the firm 1. Much of t h i s l i t e r a t u r e i s using the concept of systems. The writer f e e l s that i n order to understand some of the new systems l i t e r a t u r e i n marketing the reasoning behind the systems concept should be examined. Thus, the environment f o r systems i n marketing could be structured somewhat so that the le v e l s of systems a c t i v i t i e s could be re l a t e d . Et. LIMITATIONS OF THE SURVEY The most severe l i m i t a t i o n on t h i s survey i s the fa c t that i t must be exploratory i n nature. The scope of the topic i s very d i f f i c u l t to delineate. Consequently, one might expect an unstructured, unorganized sort of rambling discourse i n a survey of t h i s kind 1. It i s true the l i t e r a t u r e dealing with systems i s just now beginning to evolve and some organiza- ti o n and some ce n t r a l concepts are beginning to appear.. But i t i s not true that something meaningful cannot be done i n view of the current state of the l i t e r a t u r e . At least some more po s i - t i v e approach can be made to attempt to delineate and understand some aspects of the l i t e r a t u r e . The success of such a venture remains, however, a point that can be debated. 11 A second l i m i t a t i o n , c l o s e l y connected with the f i r s t , i s the necessity to present an abstract of the concept of systems (as found i n Chapter II) that does not consider c o n f l i c t i n g points of view nor attempt to defend t h i s w r i t e r 1 s concept of the meaning of systems:. In view of the f i r s t l i m i - t a t i o n , t h i s highly personal content should be expected. An exploratory survey of the l i m i t e d scope outlined i n t h i s paper can scarcely do l i t t l e else than admit that such omissions weaken the value of the study. However, t h i s point w i l l not be resolved. The quality of the o r i g i n a l i n v e s t i g a t i o n that aided the writer i n constructing h i s personal opinions regarding the meaning of systems does somewhat reduce part of the error. Any errors and omissions are, of course, recognized by the writer and held as his r e s p o n s i b i l i t y . A t h i r d important weakness l i e s i n the incomplete- ness of the treatment of the systems topic as found throughout 13 the marketing l i t e r a t u r e . C l e a r l y , t h i s i s a l i m i t a t i o n that t h i s survey w i l l attempt i n some small way to help overcome. P.. ORGANIZATION OF THE THESIS Some d i f f i c u l t i e s may be anticipated unless the reader i s c a r e f u l to follow the organization of t h i s survey. As discussed i n Fisk, op. c i t . , pi. 210 12 While i t i s the stated intention of the thesis to examine the usage of systems terminology i n the marketing l i t e r a t u r e dealing with channels of d i s t r i b u t i o n , some intermediate steps are r e - quired to make such an examination. In Chapter II an abstract of the concept of system i s presented. In t h i s chapter the writer attempts to describe his understanding of the nature of systems and the systems l i t e r - ature. The abstract i s required i n order to permit evaluation of the marketing l i t e r a t u r e dealing with systems i n l a t e r chap- ters 1. In Chapter III the concept of systems i n marketing w i l l be examined and c l a r i f i e d . This chapter serves to provide a broad framework within which marketing channels of d i s t r i b u t i o n may be rel a t e d . In addition, Chapter III helps to provide a t r a n s i t i o n from a very general abstract of systems to an extremely p a r t i c u l a r treatment of aspects of the systems concept as applied i n the l i t e r a t u r e dealing with channels of d i s t r i b u t i o n 1 . Chapter IV gets into the detailed treatment of exam- ining the usage of systems terminology as applied to the l i t e r a t u r e dealing with channels of d i s t r i b u t i o n . S p e c i f i c a l l y , the meaning of channels as systems i s examined as are the c h a r a c t e r i s t i c s of marketing channel systems and models of channel systems. Chapter V deals with determining how the process com- ponent of systems i s employed i n the l i t e r a t u r e involving channels. The process component of marketing i n general i s examined and s p e c i f i c applications to channels are made. 13 In Chapter VI the input and output components of systems are examined i n t h e i r usage i n channels l i t e r a t u r e . A broad framework from the d i s c i p l i n e of economics i s developed i n dealing with channel inputs and outputs. Then, the focus i s placed on the marketing l i t e r a t u r e and how i t deals with channel inputs and outputs 1. In the l a s t chapter, the r o l e that the systems con- cept plays i n marketing channels l i t e r a t u r e i s assessed and some conclusions and hypotheses f o r further investigation are pre- sented1. CHAPTER II AN ABSTRACT OF THE CONCEPT OF SYSTEMS AND ITS ROLE IN BUSINESS THEORY FORMULATION A. TOWARDS CLARIFYING THE CONCEPTS OF THE SYSTEMS APPROACH AND SYSTEMS The concept of the systems approach appears to have a variety of meanings, or at least to be interpreted i n a number of ways:. The systems approach i s an administrative technique f o r understanding company organizations, a control technique f o r managing production processes, and a conceptual device to struc- ture and f a c i l i t a t e management problem solving, i n addition to a number of other meanings e The same tendency toward a vari e t y of meanings applies to systems. The concept i s widely but loosely used and i t becomes a d i f f i c u l t task to t ry to explain i t s meaning. Yet, there appear to be some useful and workable elements i n the concept and there seems to be some consensus as to the components and uses of the term. In the chapter presented here an attempt w i l l be made to define and discuss some of the more useful and applicable con- 14 15 cepts r e l a t e d to systems and an endeavour w i l l be made to e v a l - uate some of these concepts. B/ THE STRUCTURE OF SYSTEMS LEVELS In the f i r s t chapter the concept of system was gene- r a l l y d e f i n e d to mean a group or c o l l e c t i o n of i n t e r r e l a t e d and interdependent components or a c t i v i t i e s o f t e n s y n e r g i s t i c i n n a t u r e . x In order to show how the v a r i o u s types of systems that w i l l be discussed l a t e r i n t h i s chapter are r e l a t e d , i t i s neces- sary to develop the concept of the s t r u c t u r e of systems l e v e l s . Kenneth E. Boulding has developed a c l a s s i f i c a t i o n of systems l e v e l s . As was shown i n the t a b l e on page 3 , these l e v e l s are the s t a t i c , mechanical, or:.-clockwork, c y b e r n e t i c o r feedback, b a s i c throughput or s e l f - m a i n t a i n i n g , g e n e t i c - s o c i e t a l , animal, human, s o c i a l o r g a n i z a t i o n , and t r a n s c e n d e n t a l . Each of these l e v e l s , i n ascending order from the s t a t i c , are d i f f e r - e n t i a t e d on the b a s i s of complexity. Thus, one may a t t a i n i n P. 3 . S y n e r g i s t i c , the reader w i l l r e c a l l , r e f e r s to the e f f e c t of the t o t a l system being greater than the sum of the e f - f e c t s of the p a r t s taken i n d i v i d u a l l y . See p. 96. 2 Pp. '21 and 48-62. 3 Boulding, op. c i t . , p. 1203. 16 each succeedingly higher l e v e l of system complexity a number of systems which appear at the lower l e v e l of the scale. As 4 Dr. Moore points out i n one of h i s examples, the thermostatic furnace, a cybernetic or feedback system, i s made up of a number of s t a t i c and mechanical devices. Let us review b r i e f l y Dr. Boulding*s schema of sys- tems l e v e l s . The s t a t i c l e v e l of system complexity Boulding c a l l s the l e v e l of frameworks. The accurate description of these frameworks i s the beginning of organized t h e o r e t i c a l knowledge i n almost any f i e l d , f o r without accuracy i n the description of s t a t i c r e l a t i o n s h i p s no accurate functional or dynamic theory i s possible. Thus, the Copernican revolution was r e a l l y the discovery of a new s t a t i c framework f o r the solar system which permitted a simpler description of i t s dynamics. The next l e v e l of systematic analysis i s that of the simple dynamic system with predetermined necessary motions. 5 As Boulding says, t h i s might be c a l l e d the l e v e l of clockworks. The next l e v e l , c l o s e l y related to the preceding one, i s that of the control mechanism or cybernetic system. This d i f f e r s from the simple stable equilibrium system mainly i n the f a c t that the transmission and interpretation of i n f o r - mation i s an e s s e n t i a l part of the system. As a r e s u l t of t h i s , the equilibrium p o s i t i o n i s not merely determined by the equations Dr. L. Moore, "The Systems Concept—A Key to Organizational Effectiveness," currently unpublished a r t i c l e , A p r i l , 1966, p. 2. 5 Boulding, op. c i t . , p. 202. 17 of the system, but also the system w i l l move to the maintenance of any given equilibrium, within l i m i t s . Thus, the thermostat w i l l maintain any temperature at which i t can be set, the equi- librium temperature of the system i s not determined s o l e l y by i t s equations. The t r i c k here, of course, i s that the e s s e n t i a l variable of the dynamic system i s the difference between an "observed" or "recorded" value of the maintained variable and i t s " i d e a l " value. If t h i s difference i s not zero, the system moves to diminish i t ; thus, the furnace sends up heat when the temperature as recorded i s "too cold" and i s turned o f f when the recorded temperature i s "too hot." The fourth l e v e l i s that of the self-maintaining structure. This i s the l e v e l at which l i f e begins to d i f f e r e n - t i a t e i t s e l f from n o n - l i f e ; i t might be c a l l e d the l e v e l of the c e l l . However, molecular systems maintain themselves i n the midst of a throughput of atoms. In spite of t h i s factor though, as we pass up the scale of complexity of organization towards l i v i n g systems, the property of self-maintenance of the structure i n the midst of a throughput of material becomes of dominant im- portance. Closely connected to the property of self-maintenance i s the property of self-reproduction. It may be that s e l f - production i s a more primitive or "lower l e v e l " system than the self-maintaining but i t i s not important at what point i n the scale of increasing complexity " l i f e " begins. What i s c l e a r , however, i s that by the time we have got to systems which both reproduce themselves and maintain themselves i n the midst of a 18 throughput of material and energy, we have something to which, Boulding states, i t would be hard to deny the t i t l e of " l i f e . " The f i f t h l e v e l might be c a l l e d the genetic-societal; i t i s t y p i f i e d by the plant and i t dominates the empirical world of:the botanist. The outstanding c h a r a c t e r i s t i c s of these sys- tems are a d i v i s i o n of labour among c e l l s to form a c e l l society with d i f f e r e n t i a t e d and mutually dependent parts (roots, leaves, etc.) and a sharp d i f f e r e n t i a t i o n between the genotype and the phenotype which are associated with the phenomenon of "blue- printed" growth. At t h i s l e v e l there are no highly spe c i a l i z e d sense organs and information receptors are d i f f u s e and incapable of much throughput of information. As we pass upward from the plant world towards the animal kingdom, we gradually pass into a new l e v e l , the animal l e v e l , characterized by increased mobility, t e l e o l o g i c a l behav- iour, and s e l f awareness. Here we have the development of spe- c i a l i z e d information receptors (eyes, ears, etc.) leading to an enormous increase i n the intake of information; we also have a great development of the nervous system, leading ultimately to the brain, as an organizer of the information intake into a know- ledge structure. Increasingly, as we ascend the scale of animal l i f e , behaviour i s response not to a s p e c i f i c stimulus but to a knowledge structure or view of the environment as a whole. The next l e v e l i s the human l e v e l ; that i s , of the in d i v i d u a l human being considered as a system. In addition to a l l , or nearly a l l , of the c h a r a c t e r i s t i c s of animal systems, 19 man possesses s e l f consciousness, which i s something d i f f e r e n t from awareness. His knowledge structure, besides being much more complex than that even of the higher animals, has a s e l f - r e f l e x i v e q u a l i t y — h e not only knows, but he knows that he knows. This property i s probably bound up with the phenomenon of lan- guage and symbolism. It i s the capacity f o r speech—the a b i l i t y to produce, absorb, and interpret symbols, as opposed to mere signs l i k e the warning cry of an animal—which c l e a r l y separates man from animal. Man i s distinguished from the animals also by a much more elaborate image of time and re l a t i o n s h i p ; man i s probably the only organization that knows that i t dies, that contemplates i n i t s behaviour a whole l i f e span and more than a l i f e span. Man exi s t s not only i n time and space but i n h i s - tory, and h i s behaviour i s profoundly affected by hi s view of the time process i n which he stands. On the eighth l e v e l of system complexity, because of the v i t a l importance f o r the i n d i v i d u a l man of symbolic im- ages and behaviour based on them, i t i s not easy to separate c l e a r l y the l e v e l of the i n d i v i d u a l human organism from the next l e v e l , that of s o c i a l organizations. Man i s not is o l a t e d from his fellows. So es s e n t i a l i s the symbolic image i n human be- haviour that one suspects that a t r u l y i s o l a t e d man would not be "human" i n the usually accepted sense, though he would be human. Nevertheless, i t i s convenient f o r some purposes to d i s - tinguish the i n d i v i d u a l human as a system from the s o c i a l systems that surround him, and i n t h i s sense s o c i a l organizations may 20 be s a i d to c o n s t i t u t e another l e v e l of organization!; The u n i t of such systems i s not perhaps the p e r s o n — t h e i n d i v i d u a l human as s u c h — b u t the " r o l e " — t h a t p a r t o f the person which i s con- cerned with the o r g a n i z a t i o n o r s i t u a t i o n i n q u e s t i o n , and i t i s tempting to d e f i n e s o c i a l o r g a n i z a t i o n s , o r almost any s o c i a l system, as a s e t of r o l e s t i e d together w i t h channels of com- munication;; The i n t e r r e l a t i o n s of the r o l e and the person, however, can never be completely neglected,. At the l e v e l of s o c i a l o r g a n i z a t i o n s we must concern o u t s e l v e s w i t h the content and meaning of messages, the nature and dimensions of v a l u e s y s - tems, the t r a n s c r i p t i o n o f images i n t o an h i s t o r i c a l r e c o r d , the s u b t l e s y m b o l i z a t i o n s of a r t , music, and p o e t r y , and the complex gamut of human emotion. The e m p i r i c a l u n i v e r s e here i s human l i f e and s o c i e t y i n a l l i t s complexity and r i c h n e s s . To complete the s t r u c t u r e o f systems, B o u l d i n g s t a t e s t h a t we should add a f i n a l t u r r e t f o r t r a n s c e n d e n t a l systems, even i f we may be accused at t h i s p o i n t of having b u i l t Babel to the c l o u d s . There are, however, the u l t i m a t e s and a b s o l u t e s and the i n e s c a p a b l e unknowables, and they a l s o e x h i b i t s y s t e m a t i c s t r u c t u r e and relationship!; 1 I t w i l l be a sad day f o r man when no one i s allowed to ask ques t i o n s t h a t do not have any answers. ° The concept of d i f f e r e n t types of systems i s expanded upon pages 48 to 56 i n c l u s i v e . 21 C, A SPECIALIZED DEFINITION OF SYSTEM Marketing cannot be considered involved i n a l l nine le v e l s of systems complexity,, Rather, only mechanical, cyber- netic, basic throughput, and s o c i a l organization systems apply to marketing with the other systems e x i s t i n g within the same 7 environment i n which marketing exists.. Perhaps these other systems support marketing. Mechanical systems are f e l t to be involved i n mar- keting since, by t h e i r nature, they involve transporting, storing, sorting, grading, and f a c i l i t a t i n g the marketing processes and g flows. Cybernetic systems are involved i n c o n t r o l l i n g market- ing, i n providing marketing information, and i n the marketing flows.® Self^maintaining systems are involved i n marketing since self-maintenance implies s u r v i v a l . As i s widely held, one of the goals of business i s to survive. F i n a l l y , s o c i a l organi- zation systems are involved i n marketing since i n s t i t u t i o n s are present.1° The environment marketing exists within i s dealt i n "Inter- d i s c i p l i n a r y Contributions to Marketing Management,1' Lazer, W. and Kelley, E.J., Marketing and Transportation Paper No. 5, The Uni- v e r s i t y of Michigan, Ann Arbour, Michigan, 1962. ° These topics are expanded upon i n t h i s paper, pages 56 and 108 to 127 i n c l u s i v e . ® These topics are discussed i n t h i s paper, pages 48, 58-62, 96, and i n chapters V and VI. x Q Duddy, E.A. and Revzan, D.A., Marketing: An I n s t i t u t i o n a l Approach, 2nd edition, McGraw-Hill Inc., New York, N.Y. 1953j Chapter 2. 22 Thus, the general systems d e f i n i t i o n i s somewhat broad. In order to be more s p e c i f i c and to permit a more mean- i n g f u l application to the systems involved i n marketing, a special i z e d systems d e f i n i t i o n i s proposed f o r use i n a market- ing sense since i t i s postulated that channels of d i s t r i b u t i o n involve four l e v e l s of systems complexity (p. 21) j o "System" i s s p e c i f i c a l l y held to mean an ongoing process of related a c t i v i t i e s or tangible and intangible objects i n motion, i n process, or i n a state of change. Implicit i n the d e f i n i t i o n are a number of points requiring elaboration. 1. Systems are dynamic and involve ongoing processes"'"^ since the s t a t i c system was not included i n consideration f o r t h i s paper. 2. A c t i v i t i e s are involved i n systems since s o c i a l organi- zation systems cannot involve just mechanical process and o b j e c t s . A 3. Objects involved i n systems may be tangible or intangible i n the sense of being r e a l , concrete, or ob j e c t i v e l y observable. Intangible objects may be concepts, sub- j e c t i v e , i l l - d e f i n e d , and nebulous. Examples are found i n tangible materials involved i n a production process H The process d e f i n i t i o n i s given i n t h i s paper, pages 6, 48, and 61. 1 2 Boulding, op. c i t . , p. 204. 23 o r t h e i n t a n g i b l e a d d i t i o n o f u t i l i t y t o t h a t m a t e r i a l as i t moves t h r o u g h t h e p r o c e s s . 4. P h y s i c a l motion i s n o t n e c e s s a r y . Thus, t h e f l o w o f words i n a c o n v e r s a t i o n i s o n g o i n g but n o n - p h y s i c a l i n t h e sense o f b e i n g o b s e r v a b l e d i r e c t l y . I n a d d i t i o n , d i r e c t i o n need not be s p e c i f i e d . Hence, f l o w s may be two-way o r m u l t i d i r e c t i o n a l . But always something must be g o i n g on. 5 . As i n d i c a t e d e a r l i e r -(p. 5 ) , a b a s i c o b j e c t i v e o f systems t o be c o n s i d e r e d i n t h i s paper must h e l p make p o s s i b l e t h e a t t a i n m e n t o f t h e g o a l s o f b u s i n e s s . D. DEFINITION AND DESCRIPTION: THE SYSTEMS APPROACH 1. D e f i n i t i o n : The Systems Approach The systems approach i s d e f i n e d as t h a t approach i n w h i c h a group o f a c t i v i t i e s o r o b j e c t s i s c o n s i d e r e d i n d e t e r m i n - i n g i f and how t h e a c t i v i t i e s and/or o b j e c t s a r e r e l a t e d . Thus, t h e systems approach i n v o l v e s a t t e m p t i n g t o d e t e r m i n e whether t h e concept o f system might a p p l y t o t h e o b s e r v e d phenomena. X i i The g e n e r a l systems l i t e r a t u r e does n o t s p e c i f y t h a t o n l y b u s i n e s s g o a l s are i n v o l v e d i n systems. As i m p l i e d , b u s i n e s s g o a l s are e x p l i c i t l y i n c l u d e d i n t h i s s u r v e y i n t h e i n t e r e s t o f b r e v i t y and t o narrow t h e scope o f t h e t o p i c . 24 The d e f i n i t i o n of the systems approach involves four necessary elements: a. Formal examination may be involved and,hence, exam- ination i s not random but systematic. Formal exam- ination r e f e r s to the method of the analysis. b. 0 The meaning and c h a r a c t e r i s t i c s of systems must be known i n order to make the examination of the ob- served phenomena. c. Evaluation of alternative system designs i s involved when one attempts to describe the rel a t i o n s h i p s between observed phenomena. Problem solving or management decision making i s not implied. Rather, the method deals with an evaluation of alt e r n a t i v e concepts of systems and explanations of them. d i . Examination also involves consideration of a group of a c t i v i t i e s or objects that might not be i n t e r - r e l a t e d . The observer does not, however, know that an i n t e r r e l a t i o n s h i p does not exi s t u n t i l he has made the necessary examination. For systems of a complex nature, the systems approach works toward providing an objective method of examining the nature and c h a r a c t e r i s t i c s of the concepts involved. The sys- tems approach draws on ideas and p r i n c i p l e s derived from a know- ledge of what systems are and how they operate. The essence of a systems approach i s that i t can be explained and experimentally repeated. Therefore, the method i s e s s e n t i a l l y h e u r i s t i c but 25 i n the context of systems analysis, i s supported by systems con- cepts and a methodology. 2. The Relevance of the Systems Approach f o r Business The relevance of the systems approach f o r business l i e s i n the f a c t that conceptualization of a business organi- zation may be f a c i l i t a t e d through thinking of a concept of i n t e r r e l a t e d systems. Necessarily, t h i s thinking involves con- sideration of feedback-control since i t i s feedback-control which allows the businessman to monitor the state of the system. (Po 58). Feedback-control occurs when an output i s compared to a standard or c r i t e r i o n i n order to maintain or improve busi- ness processes. It may be said that business processes may be either man-dominated i n the sense of determining who, or what, controls the process. Most frequently, business processes are described as man-machine processes because both components are directed toward the achievement of s p e c i f i c tasks. The necessary pre- condition to considering systems with feedback-control i s to structure the t o t a l system. Using t h i s o r i e n t a t i o n , the i n v e s t ! gator assumes that the complex phenomena of business are essen- t i a l l y simple phenomena with multiple feedback r e l a t i o n s h i p s . 3 . The Relevant Components i n the Analysis of Systems The American Systems Association, a body of profes- si o n a l systems analysts, has devoted a large amount of time to 26 the determination of a consensus as to the components of systems analysis. The great drawback i n the ASA approach i s that i t tends to be somewhat narrowly defined and highly s p e c i a l i z e d i n a p p l i c a t i o n . However, ce r t a i n elements appear i n the l i t e r - ature of the ASA to indicate that the following components might serve as useful to understanding the systems approach as applied to marketing: a. Object, input, process, output, feedback-control, and r e s t r i c t i o n s are p a r t i c u l a r classes of compo- nents i n systems. b. Special emphasis might be placed on the process and feedback-control elements as major and e s s e n t i a l components of systems. c« A l l systems and t h e i r alternatives to be considered are discussed i n terms of systems design. d. A major objective of the systems approach i s to struc ture concepts to f a c i l i t a t e understanding them. e. A general d e f i n i t i o n of systems must employ the con- cept of ongoing processes and must involve furthering the objectives of business. 27 E. THE ROLE OF THE SYSTEMS APPROACH IN CONCEPTUALIZATION OF BUSINESS SYSTEMS Serious questions regarding the relevance of gene- r a l theories i n business have been raised from time to time 8 Skeptics sometimes hold that business i s unsuited to the scien- t i f i c method. That i s , of course, a common complaint found not only amongst skeptics. That business i s conducted i n a d i f f e r e n t environment than s c i e n t i f i c research i s true; that business prob- lems are more i l l - d e f i n e d than s c i e n t i f i c problems may also be true; that business i s not susceptible to analysis by science- oriented methods i s not necessarily true. It i s i r r e l e v a n t that the method be termed " s c i e n t i f i c " since the l i n e between the exact and inexact sciences i s d i f f i c u l t to draw. Given the capa- b i l i t y of abstraction and generalization, differences between sciences become differences of degree. That i s , i f reasoning i s without l o g i c , i f terms are ambiguous, i f decisions are i n - t u i t i v e , and i f the requirements are f o r looseness rather than exactness, the difference between "sciences" become differences i n kind. However, the l a t t e r requirements do not characterize business as i t s decision-makers intend to conduct it>. Busi- nesses conducted i n such a loose fashion either pass from the 14 scene or are overhauled f o r what Grether might c a l l s u r v i v a l . 1 4 The concept of s u r v i v a l i s widely found i n management l i t - erature. E.Ti. Grether discusses the topic i n "An Emerging Apolo- getic of Managerialism?: Theory i n Marketing, 1965," Journal of Marketing Research, May, 1965. 28 Since the s c i e n t i f i c method does exi s t , perhaps imperfectly so, i n business one may u t i l i z e Handy and Kurtz*s chart. These writers attempt to demonstrate the general place of systems i n business theory and present the following, ar- ranged not i n order but i n context with other f i e l d s : The Older F i e l d s Anthropology Sociology History Economics The Newer F i e l d s Communication Theory Information Theory Cybernetics P r e f e r e n t i a l Behaviour Game Theory Decision-making Theory P o l i t i c a l Science Jurisprudence Psychology Education L i n g u i s t i c s Sign-behaviour Value Inquiry General Systems Theory Within the general framework that Handy and Kurtz provide i t i s possible to narrow the focus back down to systems i n business;. The success of the systems approach and the v a l i d - i t y of i t s applications are influenced by the a b i l i t y of the theorist to represent the r e a l world i n symbolic form. However, 1 K Handy, R. and Kurtz, H.;, "Introduction and Some General Comments on Behavioral Research," A Current Appraisal of the ge- havioral Sciences, Behavioral Research Council, Great Barrington, Mass., 1963, Section I. 29 generalization of evaluative methods does not imply that there are universal methods at the disposal of the systems theorist and analyst;. Since the r e i t e r a t i o n of alternatives i s an i n t r i n - s i c part of the method, the method i s h e u r i s t i c . T r i a l and error p e r s i s t but i n a more formal environment. The method of the sys- tems approach i s to anchor the c r i t i c a l elements of analysis i n appropriate r e l a t i o n s h i p s to the systems concept being analyzed;.- This "arms" the theorizer, a p r i o r i , with an understanding of how to derive consistent solutions. Thus, i n systems that are inherently i l l - s t r u c t u r e d , as may be found i n most areas of busi- ness (e.g-. consumer behaviour, p r i o r i t y of needs and wants, the f a c t o r of uncertainty, random fluctuations i n p r i c e movements of s e c u r i t i e s , etc 1. 1), the method provides a set of components to a s s i s t the structuring processi. Ideally, the systems theorist moves from the r e a l world to various symbolic tools to analyze what i s observed. The goal i s not to lose d e t a i l or completeness i n t r a n s l a t i o n , nor to misrepresent. In a methodologically-oriented e f f o r t , the sys- tems theorist would move between a representation of the concept created by the symbolic tools to the r e a l world i n a r e p e t i t i v e 17 looping process. D Optner, S;.L., Systems Analysis f o r Business and I n d u s t r i a l Problem Solving, Prentice-Hall Inc., Englewood C l i f f s , New Jersey, 1965, p-. 6-. Ibid^, P b 8;. 30 l'i 1 D e f i n i t i o n and Description: Understanding Systems Concepts Through the Systems Approach Systems are maintained or improved through the introduction of changes that u t i l i z e resources (e.igv perhaps i n marketing through the marketing mix) more e f f e c t i v e l y . Ef- fectiveness of resource u t i l i z a t i o n may be measured by: av Increase or decrease i n resource requirement without a corresponding change i n volume, cost, and/or p r o f i t ; b. Increase or decrease i n exposure to r i s k , c-. Change i n r e l a t i v e value between resources measured by some c r i t e r i a . The systems approach i s p a r t i c u l a r l y well adapted f o r large-scale, complex systems:.; These concepts are i n t r i n - s i c a l l y d i f f i c u l t and may be composed of both quantitative and q u a l i t a t i v e elements*. Further, i t i s not necessary that a pre- c i s e l e v e l of success i n conceptualization be s p e c i f i e d , nor that a comparable system be i n existence at the outset^ I t i s not even e s s e n t i a l that the concept be f u l l y understood or com- p l e t e l y articulated*. It i s the task of the systems analyst to supply the missing elements and to structure the incompletely- stated system, the al t e r n a t i v e s , and the solutions.! The analyst may i d e n t i f y the system under study i n a manner d i f f e r e n t from that i n which i t was o r i g i n a l l y posed. Ibid.,p. 3 31 The goal i n evaluating systems concepts may be stated as being to bring as much pre c i s i o n as i s inherent i n the concept to i t s analysis and evaluation.] However, Fisher states that there are four constraints upon the examination of business con- cepts: a. The examination must contain the elements of a meth- odology (iye^ 1 provide p r i n c i p l e s of procedure),.! by Procedures must be i n t e r n a l l y consistenty cy- Procedures must be applicable to simple or to complex ideas'. dy Procedures must be capable of aggregating or sepa- r a t i n g elements of ideasy If an analogy to problem solving may be permitted, Polya contended that: Irrespective of the magnitude or complexity of business problems, the goal i s to improve the e x i s t i n g techniques by which they are assessed, solved, and subsequently implemented!. A problem solving methodology provides an additional means of introducing o b j e c t i v i t y into the business analysis. . . o b j e c t i v i t y and r a t i o n a l i t y i n prob- lem solving become the major f o c a l points 1. Ob- j e c t i v i t y i s the primary r e q u i s i t e of observation;.1 R a t i o n a l i t y i s defined as a thought process en- t a i l i n g l o g i c a l reasoning. A body of knowledge widely confirmed by observation becomes evidence. Observation i s the process by which data are i d e n t i f i e d with a system f o r subsequent explanation of that systemy Explanation i s defined as the l o g i c a l derivation of a statement from a number •::". ; Fisher, RyA., The Design of Experiments, Hafner Publishing Co., New York, NyYy, 1951? p. 76. 32 o f w e l l e s t a b l i s h e d f a c t s ' ? The p r o c e s s o f e x p l a n a t i o n must be r a t i o n a l . 1 . I1 $ 20 The a p p l i c a b i l i t y o f t h e above s t a t e m e n t t o e v a l u a t i o n o f s y s t e m s c o n c e p t s w o u l d .appear t o be high'. The n e e d t o s e c u r e p r o f i t i s r e s p o n s i b l e f o r t h e 21 e x i s t e n c e o f a r a t i o n a l m o t i v e i n b u s i n e s s 1 . As D ent c o n t e n d s , l e s s p r o f i t a b l e c o m p a n i e s a r e n o t d i r e c t e d i r r a t i o n a l l y . I t i s n o t c l a i m e d e i t h e r t h a t v e r y p r o f i t a b l e c o m p a n i e s a r e managed i n a c o m p l e t e l y r a t i o n a l f a s h i o n 1 . Use o f t h e t e r m i s i n t e n d e d t o c o n v e y o n l y t h a t t h e p u r s u i t o f p r o f i t i s i n i t s e l f d i s c i p l i - n a r y ^ P r o f i t m a k i n g t e n d s t o r e j e c t i n t e n t i o n a l l y i r r a t i o n a l a c t s ^ I n a s u c c e s s f u l b u s i n e s s , t h e m a j o r i t y o f d e c i s i o n s c a n n o t be c o n t r a r y t o r e a s o n , o r i l l o g i c a l , i f i t i s t o s u r v i v e . ' T h e r e - f o r e , c o n c e p t s a p p l i e d t o f u r t h e r u n d e r s t a n d i n g o f b u s i n e s s s y s t e m s must meet a s i m i l a r s e t , o f c r i t e r i a . 21? B u s i n e s s a s a System: The R e a s o n s F o r I t w o u l d a p p e a r t h a t b u s i n e s s may be v i e w e d as a 2 2 system'; I n d e f e n s e o f t h i s c o n c e p t m i g h t be g o f f e r e d t h e f o l - l o w i n g r e a s o n s : 2 0 P o l y a , G;, How t o S o l v e I t , D o u b l e d a y and Co 1^ I n c . , G a r d e n C i t y , Ni.Y., 1957, p . 43. 2 1 D e n t , J-if'K^, " O r g a n i z a t i o n a l C o r r e l a t e s o f t h e G o a l s o f B u s i n e s s Managements," I s s u e s i n B u s i n e s s and S o c i e t y , W i l l i a m T^ Greenwood ( e d ; ) , H o u ghton M i f f l i n Co., B o s t o n , Mass'?, 1964, 385^ 2 2 B u s i n e s s h a s been v i e w e d by many t h e o r i s t s as a system; 1 T r e a t m e n t s by Duddy and R e v z a n , o p . c i t . , and o t h e r s a l l d e a l w i t h t h e s y s t e m s approach!!;3 33 ay Systems concepts make i t possible to extract both the general and the spe c i a l properties of an area to be understood;' It i s f e l t that the business manager does not usually employ the idea of a system i n h i s p a r t i c u l a r area of enterprise 1; Under most circumstances he treats solutions to problems as spe c i a l cases that are peculiar to h i s firm. In f a c t , i t might be contended that the i n d i v i d u a l manager appears to be dominated by a microscopic view of the contributing f a c t o r s , the p a r t i c u l a r approach (iyey functional versus managerial) and the p a r t i c u l a r theorist (evg. i n marketing, Alderson or Revzan or Grether etc.) most i n f l u e n t i a l on h i s way of thinking. Thus, some factors may tend not to be related to the whole* Systems not only f a c i - l i t a t e problem solving but also go one step further and permit conceptualization of whole areas of busi- ness activities!.; Thus, hypothesis formulation i s possible. b[y Solutions i n the business environment tend to be 23 " f i n a l outcome orientedy" F i n a l outcome solutions are defined as those i n which problem solving i s pointed at end r e s u l t s without respect to immediate Newell, A., Shaw, JyCv, and Simon, HyAy, Report on a General Problem Solving Program, The RAND Corpy, Santa Monica, C a l i f o r n i a , 1959, p;. 1584y 34 outcomes and a l t e r n a t i v e s . Opposed to the f i n a l outcome orient a t i o n are solutions characterized as process solutions*.' The process o r i e n t a t i o n con- ceives of the problem as i n t r i n s i c a l l y complex, ir r e s p e c t i v e of i t s apparent s i m p l i c i t y ^ The pro- cess o r i e n t a t i o n would require that a problem be divided into i t s component, s e r i a l l y - r e l a t e d parts (ei.fg1. i n marketing, a channel of d i s t r i b u t i o n prob- lem) . The argument fo r a f i n a l outcome ori e n t a t i o n to problems i s j u s t i f i e d by the circumstances under which many decisions are made—managers make frequent decisions on demand1. Because they require more time, process solutions tend to be r e s t r i c t e d to problems hot requiring demand solutions. Hitch states: The process solution requires a formal study e f f o r t , higher cost, and more time than the f i n a l outcome so l u t i o n . It therefore has i t s greatest value i n addressing the large-scale, complex problems where the stakes are high and management i s w i l l i n g to invest i n a care- f u l l y - d e r i v e d conclusion'.1 24 A f i n a l reason to adopt the process solution: a so- l u t i o n i s composed of many parts, some having prece- dence over the others i n order of t h e i r necessary p r i o r i t y . The s i t u a t i o n must be understood i n terms ^ Hitch, Q.J., On the Choice of Objectives i n Systems Studies, The RAND Corp., Santa Monica, C a l i f o r n i a , 1960, p'. 1955. 35 of i t s detailed processes i n order to employ the components of a solution, properly related to avoid l o g i c a l inconsistency. Systems provide a framework within which process solutions may be integrated. "Systems may provide the objective standard by which 25 problems can be organized f o r solution." An ob- j e c t i v e standard may be defined as a nonsubjective means of sta t i n g what a r e l a t i o n s h i p should be, i n terms of authoritative c r i t e r i a embodying s p e c i f i c rules or p r i n c i p l e s . From objective standards i t may be possible to gain greater insight to generalize on business phenomena. Without the a b i l i t y to generalize, business operations become a divergent set of inputs, processes, and out- puts, never twice the same. The general s i t u a t i o n 26 which Churchman spoke of, a chaos of causes, re- s u l t s , coincidences, accidents, and successful or unsuccessful outcomes might hold. The idea of a sys- tem i s addressed, as Hitch s t a t e s , 2 7 not to an i n d i - v idual phenomenon, but to the t o t a l pattern of 25 Ibid. 2 6 Churchman, C.W., "Marketing Theory as Marketing Management," Cox, R., Alderson, W., and Shapiro, S.J. (eds.), Theory i n Market- ing, R.D. Irwin Inc., Homewood, I l l i n o i s , 1964, p. 313. 2 7 Hitch, loo, c i t . 36 phenomena that create an environment and a state of being f o r a given process 0 d e A large number of concepts i n business may be placed i n a q u a n t i t a t i v e - q u a l i t a t i v e state. Quantitative concepts describe conditions wherein there are so- lutions obtained by manipulating numbers i n pre- determined ways (e.g. cost of d i s t r i b u t i n g a given volume of a s p e c i f i c product between two alternative marketing channel agencies). Qualitative concepts are non-numerical and are concerned with the speci- f i c a t i o n of future or poorly-defined resources and t h e i r attributes or c h a r a c t e r i s t i c s . As systems concepts with both quantitative and q u a l i t a t i v e as- pects become better understood, the quantitative attributes are more e a s i l y f i x e d and precise quanti- 2 8 t a t i v e solutions become more l i k e l y . For those areas that do not emerge r e a d i l y from the q u a l i t a t i v e state (e„g. consumer behaviour, brand content, pre- ferences, etc.) quantitative methods have limited use. Hence, other methods must be introduced to deal with the q u a l i t a t i v e systems r a t i o n a l l y . Sys- tems with both q u a l i t a t i v e and quantitative charac- 29 t e r i s t i c s can be c a l l e d mixed problems. 2 8 Newell, et__aLj, op. c i t . 2 9 Ibid. 37 The systems approach and the concept of system pro- vides a framework within which topics of business action may be categorized. The approach taken of considering l e v e l s of system complexity ignores the managerial problem solving approach but provides a conceptual framework which serves to f a c i l i t a t e understanding of the place of the p a r t i c u l a r enter- pr i s e i n the t o t a l systems environment.' Thus, i n t h i s view of a larger environment, problem solving i s seen to be li m i t e d by the nature of the t o t a l environment. For example, a wholesaler i s a spe- c i a l i z e d channel middleman. As such, the wholesaler can exert l i t t l e pressure on f i n a l consumers to demand that h i s services be u t i l i z e d i n the handling of the products those consumers desire. Such an occurrence i s absurd by d e f i n i t i o n . 3. Purpose: The Systems Approach The purpose of a systems approach i s to provide a useful structure f o r evaluating d i f f i c u l t concepts. Further, an evaluative methodology f o r business systems must do these 30 thxngs: a. Prescribe a method that f u n c t i o n a l l y organizes a general evaluative process. Optner, op, c i t . , p. 10. 38 b. Stipulate the steps that should be taken to provide the format necessary f o r evaluation of hypotheses concerning systems. c. Describe systems models and c a p a b i l i t i e s that provide the means f o r the i t e r a t i o n of alternative outputs 31 i n the evaluative process. This general discussion does not imply the experi- mental method although the method has a r o l e to play. Some have gone so f a r as to state: There are few places where experimentation i s acceptable i n the business world. • .research i s seldom "pure/' but very much applied. This may explain why business produces r e l a t i v e l y few "philosophers of business." In day-to-day busi- ness problems, there can be no doubts about the nature of the world. In longer-range problems, i f d e t a i l s are incomplete or i f too many a l t e r - natives e x i s t , there may be less c e r t a i n t y . In t h i s l a t t e r area, a philosophy of problem solving i s as yet unstated f o r even a lim i t e d c l a s s of problems. 32 Business may be viewed as open-ended since there i s a need to accept and evaluate a variety of random factors that may not be usable and, therefore, not enhance the value of the firm, i n order to operate i n a chosen environment (e.g. not a l l changes i n the market affect a p a r t i c u l a r firm or a p a r t i c u l a r market v a r i a b l e ) . Thus, i n l i g h t of these two problems, i t would ^ Hitch, op. c i t . 32 Helmer, 0. and Rescher, N., On the Epistemology of the Inexact Sciences, The RAND Corp., Santa Monica, C a l i f o r n i a , 1958, p. 1513. 3 9 appear that there i s a place f o r a s c i e n t i f i c a l l y oriented, general purpose, evaluative methodology* Given the incom- p l e t e l y structured, open-ended world of business, the task i s to explore the p o s s i b i l i t y of improving performance i n evalu- ation of business systems. 4^ D e f i n i t i o n s and Methodology: I l l - S t r u c t u r e d Business Systems Some d e f i n i t i o n s might be presented here before pro- ceeding further: a. Method: A method i s founded on the t r a d i t i o n of independent in v e s t i g a t i o n . The stimulus f o r i n v e s t i - gation i s the i n d i v i d u a l s experience or f a m i l i a r i t y with the topic area. b. Solution: A solution i s defined as the means of c l o s i n g the gap between an e x i s t i n g s i t u a t i o n as observed or i n f e r r e d and a proposed s i t u a t i o n . It must be conclusive and demonstrable* c* Conclusion: A conclusion i s defined as an inference drawn from two or more propositions that are taken as a premise. d 0 H e u r i s t i c Method: The h e u r i s t i c method does not re- quire formal problem d e f i n i t i o n nor abstraction although such steps often f a c i l i t a t e obtaining s o l u - ti o n s . However, under the h e u r i s t i c method, no demands need exist f o r demonstrating unambiguously 40 how a conclusion was reached. Further, the solution might not be optional since the student may not be able to determine i f he has optimized the s o l u t i o n . From the above four d e f i n i t i o n s i t i s possible to discuss i l l - s t r u c t u r e d systems;. P a r t i c u l a r emphasis i s given to t h i s topic since i t so largely represents the current state of business theory. One of the tasks i n applying a methodology to evalu- ating systems i s to i d e n t i f y the valuable, useful elements of what i s considered a lar g e l y h e u r i s t i c process (e.g. perhaps marketing managers learn through t r i a l and error more than 3 3 through i n t u i t i o n or systematic c a l c u l a t i o n )•. A second task i s to propose ways of i d e n t i f y i n g the high r i s k , low payoff po- t e n t i a l s , i m p l i c i t i n any p o t e n t i a l course of business actions. There i s no implication, however, that any of the inventive, i n - genious conclusions that may grow out of h e u r i s t i c hypothesis formulation w i l l be l o s t . The task^ i n short, i s to bring struc- ture to an i l l - s t r u c t u r e d process;. The i l l - s t r u c t u r e d system has another important c h a r a c t e r i s t i c : i t attempts to deal with value systems of d i f - ferent orders i n a r r i v i n g at a single s o l u t i o n e One such system may deal with time (e.g. d i s t r i b u t i o n lead times); a second, with cost (e.g. pricing) ; a t h i r d , with effectiveness (e.gj.i the t o t a l ^ Alderson discusses the stages i n decision making i n Chap ter 14 of Marketing Behaviour and Executive Action, R.D. Irwin Inc., Homewood, I l l i n o i s , 1957. 41 marketing mix) . In each of these three categories there::may be quantifiable and non-quantifiable elements. In each category there may be equipment, processes, human and other subcategories, each presented with varying degrees of completeness. Some s k e l e t a l requirements to bring structure into structured process might be suggested a s : 3 4 a. The process might be flow-charted, showing the p r i n - c i p a l action points. b. D e t a i l s of the p r i n c i p a l process steps must be de- scribed. c. The p r i n c i p a l alternatives and how they were generated must be demonstrable. d. The assumptions pertinent to each alt e r n a t i v e must be i d e n t i f i e d . ei. The c r i t e r i a by which each alt e r n a t i v e w i l l be judged must be f u l l y : s t a t e d . f . Detailed presentation of data, data re l a t i o n s h i p s , and the procedural steps by which data were evaluated must be part of any solut i o n . g. The major alternative solutions and d e t a i l s to ex- pl a i n why other hypotheses were eliminated must be shown. Newell, A., Shaw, J.C., and Simon, H.A., Elements of a Theory of Human Problem Solving, The RAND Corp., Santa Monica, C a l i f o r n i a , 1959, p. 144. 4 2 In t h i s study the preceding requirements are not equal i n importance, i n precision of expression, or i n degree of completeness and o b j e c t i v i t y with which they can be expressed,; In a given s i t u a t i o n each requirement might assume a unique im- portance. Further, i t i s not assumed that each step w i l l be f u l l y workable i n application to poorly structured systems. Rather, the steps are a useful framework f o r approaching systems and might apply on more than one l e v e l of system complexity. F i n a l l y , none of these steps would necessarily imply quantifiable r e l a t i o n s h i p s . There are two major problems i n attempting to bring structure to i l l - s t r u c t u r e d systems concepts. F i r s t , the form i n which the requirements of i l l - s t r u c t u r e d systems are communi- cated complicates structuring. The act of writing and document- ation of investigation and reporting of r e s u l t s sometimes would have the e f f e c t of f o r c i n g structure into a system. Verbosity, semantics, sentence structure, completeness i n presentation, ac- curacy of research, thoroughness of data gathering, research methods used, bias of the researcher and of the respondents add further complications. The second problem i n attempting to structure i l l - structured systems or systems concepts involves d i f f i c u l t i e s with data. Numbers and information are data which i n turn may be con- sidered to be r e s u l t s . Thus, data are not a phenomenon but serve to describe a phenomenon. Explanation of a phenomenon must mean that data be related, numerically i f possible, to other data. 43 The use of data as f a c t u a l evidence of a phenomenon, or as a r e s u l t of a phenomenon has a number of major p i t f a l l s . F i r s t , i t may be d i f f i c u l t to interpret what the data mean. Second, problems emerging from a misunderstanding of data r e l a - tionships could r e s u l t i n errors i n s c a l i n g , i n exaggerating the influence of one at t r i b u t e over another, and f i n a l l y , i n s e l e c t - ing data to describe a phenomenon. Weiner states: Understanding data and data relationships has i t s f i r s t test when the analyst investigates a problem. The second test takes place when the analyst uses the data to analyze a problem. The t h i r d test takes place when he draws conclusions from the data and data r e l a t i o n s h i p s . The fourth test occurs when the data i s formally presented as an explan- ation of a problem or as a sol u t i o n . The ultimate test i s the conclusiveness of the explanation. This, i n turn, rests upon the a b i l i t y to: (1) demon- strate an outcome i n advance of an occurrence; or (2) to predict an outcome that i s not demonstrable, but that does, i n f a c t , occur. 35 A t h i r d p i t f a l l i s related to the structure of the system. The use of data must be made cl e a r : do the data explain the pheno- menon or does the phenomenon explain the data? Business contains a great deal of "raw" data—much uncatalogued, unqualified, un- organized value sets r e s u l t i n g from a process (e.g. buying behaviour)!. The systems th e o r i s t (analyst) needs to analyze and resynthesize raw data into a meaningful structure that works toward explaining the process. Most l i k e l y , a l l that w i l l appear from t h i s would be a description of the re l a t i o n s h i p s without a o Weiner, N., Cybernetics, J; 1 Wiley and Sons, New York, N.Y., 1948, p. 37. 44 conclusive proof or of the exact weight one r e l a t i o n s h i p exerts on another. This would be a f r u s t r a t i n g problem f o r the systems analyst. Ideally, systems theory suggests that the analyst be chained to h i s numbers and t h e i r r e l a t i o n s h i p s , otherwise i t would be impossible to grasp the sig n i f i c a n c e of the data or t h e i r r e - la t i o n s h i p s . However, the great value of the systems approach to conceptualization l i e s i n the way i t views topics h o l i s t i c a l l y . In a long run view, the entire business process could be explained and every subprocess meaningfully related to the whole. The f i r s t problem i s , however, to determine what relationships might prove meaningful. Systemsctheory provides a way to examine r e l a t i o n - ships as parts of a whole* F. AN AMPLIFICATION OF THE SYSTEMS APPROACH 1. The Necessary Elements i n the Systems Concept Systems are on-going processes and do not necessarily involve motion. It i s possible to define the following three concepts as necessary elements i n systems t h e o r y : 3 7 3 ^ Only dynamic systems are considered i n t h i s paper, as pointed out on page 21. Motion need not be involved since i t i s possible to conceive of intangible systems and intangible flow wherein motion cannot be detected (e.g. the'Tlow" of words over a telephone l i n e ) . 3 7Wohlstetter, A.J., Systems Analysis Versus System Design, The RAND Corp., Santa Monica, C a l i f o r n i a , 1958, p. 1530. A more detailed description of the elements of systems analysis may be found i n Optner, S.L., Systems Analysis, Prentice-Hall Inc., Englewood C l i f f s , N.J., 1960, Chapters 2-6 i n c l u s i v e . 4 5 Objects are components of systems and constitute the phenomena acted upon by the system (e.g. i r o n ore i n the smelting process)„ Objects i n a system may be c l a s s i f i e d as inputs, processes, outputs, feedback(s)- control.(s), and r e s t r i c t i o n s . These classes of ob- jec t s w i l l be c a l l e d system components. Every system component may take a var i e t y of values to describe a system state ( i . e . components are f l e x i b l e i n value). F i n a l l y , a l l objects may be defined or unde- fined (e.g. the l i m i t a t i o n s on an hypothesis may not be known u n t i l put into action). Attributes are the properties of system components. A property i s the external manifestation of the way i n which an object i s known, observed, or introduced i n a process. Attributes may also ex i s t for inta n - gib l e components but these remain open f o r debate and conjecture by the s o c i a l sciences (e.g 1 # as i n u t i l i t y theory and s o c i a l psychology). Attributes characterize the components of systems making possible the assignment of a value, regardless of which science (or d i s c i p l i n e ) applies i t , and a dimensional descrip- t i o n (including time). The attributes of objects may be altered as a r e s u l t of a system operation,* Relationships describe the bonds that l i n k objects and at t r i b u t e s i n the system process. Relationships are postulated as being possible among a l l system 4 6 elements, among systems and subsystems, and between two or more subsystems. Relationships may be charac- t e r i z e d as f i r s t order when they are f u n c t i o n a l l y necessary to each other (e.g. p r i c e and purchasing). Relationships may be characterized as second order i f they are complementary, adding s u b s t a n t i a l l y to system performance when present, but not f u n c t i o n a l l y e s s e n t i a l (e.g.i advertising and product s a l e s ) . F i - n a l l y , r e l a t i o n s h i p s may be characterized as t h i r d order when they are either redundant or contradic- tory. Redundancy describes a state whereby the system contains superfluous objects (e.gi. more productive capacity than the market can absorb i n terms of pro- ducts moved i n any given period of time, such as i n the coal industry). A contradictory condition e x i s t s when the system contains two objects, which i f one i s true, the other by d e f i n i t i o n , i s f a l s e (e.g>. which theory of "consumer" motivation i s c o r r e c t — Maslow's or McClellan*s?);. A system, condition, s i t u a t i o n , or state i s postulated to describe a set of objects, a t t r i b u t e s , and r e l a t i o n s h i p s . (It i s important to remember that objects need not be concrete, they can exist also as intangibles.) A postulated proposition i s one which i s put f o r t h hypothetically as a tenative statement. 4 7 2v System Malfunctions The foregoing d e f i n i t i o n s of the three major elements of systems theory allowed Wohlstetter to postulate that system malfunctions may be possible. To account f o r system f a i l u r e , which may take a wide variety of forms, a system malfunction i s defined as a change i n f i r s t , second, or third-order r e l a t i o n s h i p s of objects and at t r i b u t e s , such that the system passes i t s c r i t i - 3 8 c a l point. In passing the c r i t i c a l point, one or more of the system objects i s altered, s e t t i n g up new r e l a t i o n s h i p s , and hence, new outputs (e.g. possible advertising programs that are misin- terpreted by the public, and hence product sales drop and product "image" becomes damaged—the Edsel campaign). The term " c r i t i c a l " i s employed as the change i n system components, where a property crosses a threshold and assumes a f i n i t e value of a d i f f e r e n t order. C r i t i c a l l e v e l s r e s u l t from wide va r i a t i o n s i n the pro- per t i e s of system objects outside the range provided through system design. The concept of a system malfunction i s postulated to provide a general term to describe a v a r i e t y of system f a i l u r e s that occur when the system i s required to operate outside i t s design l i m i t s . The c r i t i c a l point i s , therefore, defined as that point i n the changing of the rel a t i o n s h i p s between system components whereby the re l a t i o n s h i p i s changed to a d i f f e r e n t form than existed p r i o r to the change. As an example, s t e e l can be heated to high temperatures without losing i t s c h a r a c t e r i s t i c s . However, beyond a c e r t a i n temperature s t e e l burns and loses some of i t s c h a r a c t e r i s t i c s . 48 3? "Process" as a Special Component i n Systems The term "process," employed repeatedly i n defining the on-going state of systems, i s defined as the t o t a l i t y of com- ponents encompassed by a l l objects, a t t r i b u t e s , and r e l a t i o n s h i p s that interact to produce a given result 1. Processes may be mental (thinking, planning, learning), mental-motor (testing, writing, constructing), or mechanical (operating, functioning)^ Processes apply to men, machines, markets, behaviour, and to every kind of a c t i v i t y whether physical or mental. Therefore, no system, within the d e f i n i t i o n of t h i s presentation, may be said to ex i s t without a process. Process, then, i s a type of system but without the feedback r e l a t i o n s h i p e x i s t i n g . Thus, process must be a sequence of evernts leading to a goal. An event, however, i s a happening i n time. For example, the beginning or ending of a p a r t i c u l a r 39 task or a c t i v i t y , 40 4', Types of Systems a. Physical and Abstract Systems Systems may be categorized through t h e i r s i m i l a r i t i e s and d i s s i m i l a r i t i e s . Physical systems deal with hardware, equip- J y Example from Moore, op. c i t y , p, 1, ^ These various types of systems f i t within the various l e v e l s of systems complexity as outlined on page 15, The placing of any p a r t i c u l a r type of system on a p a r t i c u l a r system l e v e l depends upon the nature of the system being considered. 49 ment, machinery, and, i n general, r e a l objects or a r t i f a c t s . These systems may be contrasted with abstract systems. In the l a t t e r , symbols represent attributes of objects that may not be known to e x i s t , except i n the mind of the investigator 1. Concepts, plans, hypotheses, and ideas under investigation may be described as abstract systems. Within the categories of physical and abstract systems, the on-going process may be seen at many l e v e l s . The componenti processes necessary to the operation of a t o t a l system are known 41 as subsystems'. Subsystems i n turn may be further described as more de t a i l e d subsystems1;" The hierarchy of systems or the number of subsystems are dependent only upon the i n t r i n s i c com- p l e x i t y of the t o t a l system.1 It i s conceivable that some systems may contain an i n f i n i t e v a r i e t y of processes and, conversely, other systems contain a f i n i t e , l imited number of;,processes. At each i d e n t i f i a b l e process i t i s possible to s t i p u l a t e that there i s a system. Further, systems may operate simultaneously, i n p a r a l l e l (to borrow from e l e c t r i c a l engineering), or i n series without any r e s t r i c t i o n s other than those imposed by design or by the r e a l world. Each system may be said to exist within a s p e c i f i c environmenti. Systems must exist within, and are conditioned by, the environment!. The f i r s t condition of t h i s environment i s the boundary within which the system i s said to operate. Environment Wohlstetter, op. c i t ; , p. 153. 50 i s defined as a set of a l l objects, within some s p e c i f i c l i m i t , that may conceivably have a bearing upon the o r i e n t a t i o n of the system.^ Thus, the concepts of exogenous and endogenous variables 42 may be applied. 1 The analysis of business problems i s d i f f i c u l t to conduct i n unlimited research i n an attempt to understand a l l conditions that have impact upon system operation.! The concept of a boundary prescribes a l i m i t a t i o n within which the objects, a t t r i b u t e s , and t h e i r r e l a t i o n s h i p s are adequately explained and manageable. Systems and t h e i r boundaries may be defined simply 43 i f the objects are absolute or f i n i t e i n nature. Physical systems can be described most conveniently i n quantitative, per- formance terms (e.g. Breyer and systemics)'. Abstract systems, however, may not be as e a s i l y defined i n f i n i t e terms (e£g. the process by which a consumer chooses one brand i n preference to another). A l l systems operate within a given environment and a given boundary;. (1) Process Analysis as a Technique i n Examining Physical and Abstract Systems The study of physical and abstract systems may take one of two courses: process analysis or f i n a l outcome analysis. In process analysis the system may be studied as a number of i n t i - Howard, J.A., Marketing Management: Analysis and Planning, revised e d i t i o n , R^D. Irwin Inc., Homewood, I l l i n o i s , 1963, Chapter 3, p. 38. Wohlstetter, op. c i t 51 mately related subsystems. This approach generates the process type of analysis. In a process-oriented analysis, the analyst defines the intermediate outputs of systems. He then studies the means by which they are introduced into s e r i a l l y - r e l a t e d processes f o r subsequent processing. In process analysis, there are many alternatives or options that qu a l i f y as intermediate solutions'; (2) Final-Outcome Analysis i n Examining Physical and Abstract Systems Juxtaposed to process analysis i s final-outcome ana- lysis*; Under t h i s method, the system i s treated as a wholes The analyst i s more concerned with overriding and r e s u l t s than the intermediate r e s u l t s . In outcome-oriented analysis there i s no cer t a i n knowledge of a l l the intermediate outputsif Thus, there may be no means to esta b l i s h the basis on which a l l the processes are united i n the t o t a l system operation. (3) Models and Their Uses:in Examining Physical and Abstract Systems/ If a model i s an accurate r e p l i c a or representation of the r e a l world, i t may be termed sp e c i a l purpose. Special purpose models may be brought to bear upon most problems with some calculable expectation of success. In contrast, general purpose models approximate the r e a l world with something less than the s u b j e c t i v i t y and substantive content of the spe c i a l pur- 44 pose model1; It follows that solutions derived by general purpose Weiner, op* cit';, p. 54-. 52 models are general i n nature; i n the same way, solutions derived by s p e c i a l purpose models are sp e c i a l purpose i n nature. Neither i s applicable to i t s opposite category of solutions without care- f u l l y stated assumptions. (4) Decentralized and Centralized Systems as Physical and Abstract Systems Physical and abstract systems may be decentralized 45 or c e n t r a l i z e d . In a cent r a l i z e d system one element or one major subsystem plays a dominant r o l e that may override the other system components-. In t h i s arrangement of systems and subsystems, the major subsystem i s c e n t r a l to the operation. 1 The minor sub- systems are s a t e l l i t e to the ce n t r a l operation (evgi. the market- ing mix)*. In a decentralized system, the converse may be true; major subsystems are of approximately equal value;., Rather than being arranged around a cen t r a l subsystem as s a t e l l i t e s , the major subsystems are s e r i a l l y arranged;.' Otherwise they may be arranged i n p a r a l l e l with each providing s u p e r f i c i a l l y s i m i l a r outputs* In both ce n t r a l i z e d and decentralized systems, inputs and outputs may be prescribed. Conceptually, both types of systems may be i n existence i n the physical and abstract systems categories'. to. Natural and Man-made Systems Natural and man-made systems separate systems according to t h e i r o r i g i n ^ Natural systems are defined as those growing out 4 5 Ibid. 5 3 of natural processes. Man-made systems are those i n which man has made a contribution to the on-going process either through objects, a t t r i b u t e s , or re l a t i o n s h i p s . Natural and man-made 46 systems may also be physical or abstract. For the purposes of t h i s paper the natural systems and the discussion of them w i l l be omitted since, by d e f i n i t i o n , they bear l i t t l e , i f any, relevance for b u s i n e s s — a t least as can be ascertained curre n t l y ^ (1) Open and Closed Man-made Systems Man-made systems may reproduce, i n a controlled en- vironment, the natural conditions that are not manageable i n the r e a l world,' Thus, such systems may be viewed as open systems; these trade t h e i r materials or energies with the environment i n a regular or understandable manner. Most business a c t i v i t i e s 4 7 are conducted i n an environment of an open system. Opposed to t h i s are closed systems, which operate with r e l a t i v e l y l i t t l e interchange of either energy or materials with the environment ( e g 1 ; monopolies are pa r t l y closed systems when t h e i r processes and products are protected by patents). The objective i n system design i s to move toward a closed system through feedback-control or i n a wider view, to understand the interplay of a l l the v a r i - ables and t h e i r e f f e c t s that act i n and upon the system. 4 6 Ibid.- 4 7 Hitch, op; c i t ; , p.,; 3 3 ' . 54 (2) Adaptive Man-made Systems Man-made systems may also be adaptive'.') This commonly occurs when man must introduce input, process i t , and d e l i v e r output.^ An adaptive system i s one i n which there i s a continuous learning or self-organizing process i n motion. In adaptive sys- tems, the range of input may be wide and the processor may be 48 required to deal with undertain input (e^gy computers and the e f f o r t being expended i n to teach computers to learn from pre- vious experience). (3) Randomness i n Man-made Systems Man-made systems may be further characterized as having random properties. These exi s t i n the natural as well as the man-made categories of systems!. Randomness describes a condition of s t a t i s t i c a l l y unstable input or output^ In a random system, input i s not predictable and the system operation takes 41 place within widely defined l i m i t s (evg'S the advertising process)y Adaptive systems may be designed to cope with a random conditions However, analysts t y p i c a l l y attempt to r e s t r i c t randomness i n an e f f o r t to design simple systems^ When randomness i s among the important conditions of a s i t u a t i o n , i t may be relegated to one s p e c i f i c area of subsystem a c t i v i t y (e.g. the tendency to Weiner, op. c i t . , pv 66'. 4 9 Randomness can, however, be anticipated through p r i n c i p l e s of p r o b a b i l i s t i c s . Thus, the p r o b a b i l i t y of a p a r t i c u l a r random event actually occurring can be stated. Refer to the next section, page 55. 55 view each major area of the marketing mix as a separate and d i s - t i n c t unit even though f u n c t i o n a l l y r e l a t e d ) ; This i s done to r e s t r i c t the unstable objects, a t t r i b u t e s , and rela t i o n s h i p s i n ways which minimize t h e i r impact on other more stable subsystems^! (4) Cost of System F a i l u r e as an Element i n Man-made Systems The p r i n c i p a l goals i n system design are to reduce system f a i l u r e at some cost or to understand the workings of the si t u a t i o n to be examined^1 Only man-made systems respond to the f i r s t goal with any s t a t i s t i c a l accuracy; where natural systems are concerned, the objects may not be manageable, hence the r e l a - tionships are random and r e l a t i v e l y unstable^ 1 Man expresses these uncertain si t u a t i o n s through estimates of a p r o b a b i l i t y of occurrence 1; ( 5 ) A Generalization From t h i s discussion of natural and man-made systems i t i s possible to generalize somewhat!. Natural systems are struc- tured through the interplay of environmental forces much resembling the exogenous variables i n marketing. The quality of structure i s achieved when a set of system objects are organized into something approaching an adaptive operation^ For example, marketing i s i n - herently man-made and i s a man-made system structured by man; •„.".•. When man designs the system, one of the p r i n c i p a l goals i s to r e - duce human f a i l u r e , as i t may contribute to system malfunction 1. The systems analyst may be c a l l e d upon to design a system that 56 exists i n a random i l l - s t r u c t u r e d statei. His objective may be to reorganize i t so i t may operate as a well-structured open system with the c a p a b i l i t y of adapting to a given range of i n - puts i n a predetermined fashiony c. Man-Machine Systems In the man-machine system, the r o l e of each component i s definedy Either man or machine may be central to the opera- tion 1. The system designer attempts to r a i s e the quality of the human input to the l e v e l of the machine;. It may be that the implications f o r business of such a system are wide ranging^ However, the topic of man-machine systems w i l l not be discussed i n t h i s paper as i t deals with ma- chine c a p a b i l i t y , r i g i d d e f i n i t i o n of machine components, and r i g i d structuring of systems; It i s f e l t that these systems bear l i t t l e relevance f o r a thesis of t h i s nature. 5y The Concept of "Total System" The t o t a l system consists of a l l the objects, a t t r i - butes, and rel a t i o n s h i p s necessary to accomplish an objective, given a number of constraints^ The term "system" i s generally used most!frequently to mean the t o t a l system and w i l l also be the case i n t h i s paper. The objective of the t o t a l system defines the purpose f o r which a l l the system objects, a t t r i b u t e s , and r e - lationships have been organized. The constraints of the system 57 are the l i m i t a t i o n s placed upon i t s operation. Constraints define the boundary of a system and make i t possible to state e x p l i c i t l y the condition under which i t is. intended to operate. Descriptions of systems must be expanded to include not only a l l of the ob- jects but also a l l of the attributes and t h e i r r e l a t i o n s h i p s . For each object there may be only one att r i b u t e but there may be many relat i o n s h i p s ; the converse may also be true. The concept of the t o t a l system allows the analyst to draw a wide but complete boundary around the topic under study. By defining the f u l l scope of the system the analyst attempts to attack the underlying problem;; The underlying problem may have relat i o n s h i p s over a wide set of objects. This makes i t neces- sary to test a lternative solutions i t e r a t i v e l y . The objective i s to determine the behaviour of a l l system objects under varying conditions!.; 6. The Classes of Components of Systems The components of systems are objects, inputs, pro- cesses, outputs, feedback(s)-control(s), and r e s t r i c t i o n s . Each i s a p a r t i c u l a r component of systems since each, by d e f i n i t i o n (pi. 26), i s es s e n t i a l to the very nature of the systems concept. a. Input, Process, and Output The input component i s the i n i t i a t i n g force that provides the system with i t s operating material. Input i s pos- 58 50 tulated to take one or more of the following forms: (1) The r e s u l t of a previous process, i n l i n e , s e r i - a l l y (e,g0i learning process i n purchasing)!. (2) The r e s u l t of a previous process randomly gene- rated (i.ey other than s e r i a l ) , (e;.g.'; purchase of an impulse item), ; (3) The r e s u l t of a process that i s being r e i n t r o - duced as a r e s u l t of a p r i o r system output (reference to p r i o r s a t i s f a c t i o n i n making new purchases)W The r e s u l t s of processes are outputs. Outputs can also be defined as the purpose f o r which system objects, a t t r i - butes, and rela t i o n s h i p s are brought together 1. Therefore, output i s congruent with the objective, which i s s i m i l a r l y defined,. . The outputs of subsystems are intermediate, as opposed to the outputs of systems which are finals; Outputs may be casually or mutually (complementary) dependent to provide suitable input to higher-order subsystems'. Output introduced to a subsequent subsystem with no processing modification, may automatically become an input. b1.- Feedback-Control Feedback i s defined as the subsystem function that compares outputs with a c r i t e r i o n or standard; Control i s the 50 Weiner, op. c i t . , p. 78. 5 9 o b j e c t i v e of feedback and i s considered to be a monitor of the s t a t e of the system. That i s , subsystem operations are maintained by c o r r e c t i n g o r a d j u s t i n g f o r d i f f e r e n c e s between output and c r i t e r i a ^ The term "feedback" i m p l i e s the presence of a subsystem designed to detect or determine output w i t h the purpose of achiev- i n g o r mai n t a i n i n g c o n t r o l . C o n t r o l i m p l i e s a predetermined means of measuring output d e v i a t i o n s from what was planned o r a n t i c i - pated. The t r i a l and e r r o r r o u t i n e of the h e u r i s t i c method i s a feedback-control process.-1 I n d i v i d u a l d i f f e r e n c e s i n human a n a l y s t s i n d i c a t e that c o n t r o l may be achieved through the range of e f f e c t i v e n e s s from high to low.1 A n a l y s i s i s g e n e r a l l y depend- ent upon the i n t u i t i v e , unregulated a p p l i c a t i o n of feedback- c o n t r o l as the device by which hypotheses are generated, t e s t e d , and declared reasonable. L i k e i n p u t , feedback must be i n i t i a t e d to be i n t r o - duced i n t o system processings This could be automatic as found i n computer programming or be generated by human a c t i v i t y . ; The feedback subsystem i n e i t h e r case must be designed. The design goal i s the maintenance or improvement of subsystem performance. Business systems are not normally designed to operate e x c l u s i v e l y upon exceptions, although the exception p r i n c i p l e may be used.i The design of systems must be broad enough to accept some vari a n c e i n inputy Because business i s l a r g e l y an open system i t r e c e i v e s a number of inputs from many sources 1. Some of these are feedback sampled from a c t i v i t i e s w i t h i n the business (endo- 60 genous) and some from outside the fi r m (exogenous). Analysis of business problems would require that boundaries be drawn to include a l l the sources of input and feedback that have impact upon the operation of the t o t a l system under study.1 Feedback i s intervened i n the system. Intervention i s defined as the means of changing an ex i s t i n g state by i n i t i - ating a force to a l t e r the e x i s t i n g state;. Feedback a c t i v i t i e s may or may not override the ex i s t i n g input depending on the place, 51 time, form, i n t e n s i t y , content, and duration of intervention. The analyst must intervene an ex i s t i n g state to f u l f i l l h i s task.1 Intervention may cause the system to pass i t s c r i t i c a l point and shut down or run away. For the analyst no part of the system i s , by d e f i n i t i o n , free of defect*. The o r i g i n r o f system malfunction may be i n any of the subsystems;. F a i l u r e to locate and intervene i n a system malfunction means the hypothesis cannot be considered as proven. G. SOME SYSTEMS DEFINITIONS In t h i s section a very b r i e f d e f i n i t i o n of some of the major terms employed i n the study may be found. Optner, S.L., Systems Analysis f o r Business Management, Prentice-Hall Inc., Englewood C l i f f s , N.Jy, 1960, p. 641. 61 Attributes: The properties of objects that characterize the way i n which an object i s known, observed, or introduced i n a process. Components of Systems: Components of systems are objects, i n - puts, processes, outputs, feedback-controls, and r e s t r i c t i o n s . The objective of feedback and defined as a moni- tor of the state;of the system.' The function that compares outputs to a predeter- mined c r i t e r i o n , or standard. The i n i t i a t i n g force that provides the system with i t s operating material. The phenomena acted upon by the system*.* Character of a system with a variety of random inputs, some that may not be either useful nor valuable, f o r the system to operate i n a chosen environment. The purpose f o r which system objects are brought together; the term may be used synonymously with the term "objective." The t o t a l i t y of components encompassed by a l l objects, attributes, and relationships to produce a given r e s u l t . Describe the bonds that l i n k components and a t t r i - butes i n the system process. Control: Feedback: Input: Objects: Open-ended: Outputs: Process: Relationships: 6 2 System: An ongoing process of related a c t i v i t i e s or tangible and intangible objects i n motion, i n progress, or i n a state of change such that the objectives of business are furthered'. CHAPTER III TOWARDS AN UNDERSTANDING OF THE TERM "MARKETING SYSTEM" Halbert states: • • . i n attempting to solve some of the conceptual problems of marketing we must d i r e c t our attention to defining and measuring the basic elements of our system. 1 In t h i s chapter, some:preliminary steps are taken. Apil THE CONCEPT OF MARKETING SYSTEMS DEFINED There are some relevant systems d e f i n i t i o n s i n the marketing l i t e r a t u r e that should be examined i n order to analyze t h e i r content 1; Thus, perhaps a workable d e f i n i t i o n of marketing systems might be constructed from what d e f i n i t i o n s have already been offered. 1 Halbert, M., The Meaning and Sources of Marketing Theory, McGraw-Hill Ine;;!, New York, N®Yy, 1965, p. 141. 63 64 1. Ralph Breyer Breyer i s probably the f i r s t marketing writer to ta l k of systems i n marketing even though Shaw took a process (functional) approach to marketing which i s p a r t i a l l y a systems 4 approach. Breyer f e l t that a need f o r a new approach to mar- keting was required when he stated: ^ i . i .a new fundamental approach to the whole study of marketing, that somehow hinges upon the mar- keting channel, should be developed that would make d i s t i n c t contributions to our knowledge and mastery of t h i s f i e l d over and above a l l present p r a c t i c a l and t h e o r e t i c a l approaches. 5 Thus, Breyer develops h i s "systemic approach" to the study of marketing. The approach i s based on c o n s t i t u t i o n a l economics, founded on the premise that a l l parts of a given system must be recognized and examined. Breyer applies the methodology of i n s t i t u t i o n a l eco- nomics to only one facet of marketing—that of marketing control;; He recognizes, however, that "others i n t h e i r respective f i e l d s Breyer, R.Fy, Quantitative Systemic Analysis and Control: Study Noy 1, Channel and Channel Group Costing, College Offset Press, Philadelphia, Penn"., 1949; and Breyer, R.F., The Marketing I n s t i t u t i o n , McGraw-Hill Inc., New York, N.Y., 1934. 3 Shaw, A.W., "Some Problems of Market D i s t r i b u t i o n , " Quar- t e r l y Journal of Economics, Vol. 26, August, 1912, pp. 703-765. 4 Shaw's contribution i s outlined on pages 79.and 120. His contribution i s not presented i n t h i s chapter because i t i s very incomplete and rather narrow i n i t s applica t i o n . Breyer, R.F., Quantitative Systemic Analysis and Control, op. c i t . , reviewed i n an unpublished paper by R.S. Sav i t t , The University of C a l i f o r n i a , Berkeley, May 9, 1963, p>. vt 65 of s p e c i a l competence w i l l test i t s values and r e f i n e i t s con- ceptions as opportunity presents i t s e l f . " 6 This same hope regarding the use of systems was also proposed by the writer of t h i s study i n the f i r s t chapter. Like the writer, Breyer f e e l s that there i s a c r u c i a l need f o r more r e a l i s t i c and accurate means f o r describing and using the term "marketing channels." Unfortunately, from t h i s point Breyer proceeds to examine relationships between, and attributes of, marketing agencies without defining what a system or, more s p e c i f i c a l l y , what a marketing system i s . Like so many others who followed him, Breyer chooses to ignore defining what i t i s that he i s attempting to describe.. Thus, systems i n mar- keting are undefined as are the objects involved i n the systems. Relationships and attributes are discussed, but without r e f e r - ence to p a r t i c u l a r objects, the terms become d i f f i c u l t to use. Further, Breyer does not consider the classes of elements i n systems other than the process and control elements. 7 2. Reavis Cox Any discussion of Ralph Breyer and the "marketing system" should lead to a mentioning of the work of Reavis Cox. Since Breyer talks of marketing flows (an i m p l i c i t c h a r a c t e r i s t i c of any system because of the input, process, output elements) Cox Ibid. 7 V a i l e , RyS., Grether, E.Tv, and Cox, R;c, Marketing i n the American Economy, The Ronald Press Co., New York, N.Y., 1952;. 66 builds upon the flow concept;. Thus, Cox shows how goods are col l e c t e d , sorted, and dispersed i n the aggregate and c o n s t i - tuent channels. Cox, therefore, u t i l i z e s some sort of systems analysis when describing marketing since he, l i k e Breyer, implies the i n - put, process, and output elements of systems;. Again, much l i k e Breyer, Cox demonstrates that the c o l l e c t i o n , sorting, and d i s - persion a c t i v i t i e s can be costed and made operational i n an ac- Q counting sense. Cox, however, goes further than Breyer i n that he e x p l i c i t l y discusses "the marketing system." However, l i k e Breyer, Cox neglects to define the meaning of marketing system 9 and the elements involved i n i t . By defining the functions and a c t i v i t i e s involved i n the marketing system, Cox must be considered as an early contributor to systems thinking i n market- ing. 3. Wroe A l d e r s o n ^ Alderson views the concept of system as a managerial technique and also as a conceptual device. Yet, Alderson at no 8 Cox, R. and Goodman, C.S 0, "Marketing Costs of House B u i l d - ing Materials," Journal of Marketing, July, 1956, py 142 0 9 V a i l e , R . S . , et a l . , op. c i t . p. 51. Alderson, W., Marketing Behaviour and Executive Action, R.Di# Irwin Inc., Homewood, I l l i n o i s , 1957, py 68. 67 time attempts to define what a system i s , although he repeatedly makes reference to organized behaviour systems. Further, he spends some e f f o r t on c l a s s i f y i n g some of t h e i r components,, The unique aspect of Alderson*s contribution l i e s more i n h i s pointing out, i n 1950, x x that marketing systems are organized behaviour systems characterized s t r u c t u r a l l y by t h e i r p a r a l l e l i s m , s e r i a l i t y , and c i r c u l a r i t y . Another unique contribution offAlderson i s h i s f e e l i n g that power and communication should be used as s t a r t i n g points f o r the analysis of systems', Alderson almost completely sidesteps the i n i t i a l stage of defining systems and discussing the nature and c h a r a c t e r i s t i c s of them. To Alderson, i t appears to be more important to c l a s s i f y the systems he sees and suggest possible ways of beginning an analysis of h i s observations:. Strangely, Alderson defines objectives of systems as s u r v i v a l and growth, attempts to describe the operation of market- ing inputs and outputs, u t i l i z e s the dynamic c h a r a c t e r i s t i c of systems, talks i n terms of system balance, frequently makes r e f e r - ence to "the marketing system," and speaks of open and closed systems. Thus, Alderson describes the major components of the systems concept, yet avoids d e f i n i t i o n of I-fche meaning of the term "system." 1 2 1 1 Alderson, W., Theory i n Marketing, Cox, R. and Alderson, W, (eds.), Chicago, I l l i n o i s , R?D. Irwin, 1950, p. 76y 12 Alderson defines h i s approach as involving a sorting and matching process on page 199 of h i s Marketing Behaviour and Exec- utive Action, op. c i t . Alderson 1s works are also discussed on pages 84 and 96. 68 Alderson would have to be admitted to the group that took a "system view" of marketing i n that he makes so wide a use of the term and discusses the components of the concept. However, Alderson would have to be c r i t i c i z e d f o r the usage of h i s termi- nology with reference to systems since there are a number of gaps in his thinking. As an example, i n his Marketing Behaviour and Executive Action, he defines an open system as one i n which open- ings are s t e a d i l y being created (p. 115). Yet, conventional sys- tems theory would define an open system as one i n which i t s materials or energies are traded with the environment i n a regular 13 and understandable manner. Implicit i n Alderson^'s d e f i n i t i o n i s an understanding of what a system i s , although he never de- f i n e s i t , and an onus placed on the system to be open. The con- ventional view would contend that understanding of what systems are involved i s necessary and the openness of the system i s a c h a r a c t e r i s t i c , not creation, of i t . Later Alderson appears to correct h i s d e f i n i t i o n of open and closed systems for he states that a marketing system can be closed i n the sense that a l l of the f a c i l i t i e s and processes exist f o r performing customary transactions 1. Yet, the system may be open f o r agencies or the i n s t a l l a t i o n of a more e f f e c t i v e pro- gram of a c t i v i t i e s . ' 1 ' 4 -1-3 Optner, S;0Li., Systems Analysis f o r Business and I n d u s t r i a l Problem Solving, op. c i t . , pi. 30. 1 4 Alderson, W., "Discussion of Behavioral D i s c i p l i n e s i n Teaching and P r a c t i c i n g Marketing," The Social Responsibilities of Marketing, W.D. Stevens (ed.), A;M'.-A. Publications, December, 1961, p. 30. 69 One cannot f a u l t Alderson f o r f a i l i n g to be conven- t i o n a l , yet h i s thinking, as shown i n the open system example, renders comprehension somewhat d i f f i c u l t e However, h i s advanced thinking and i n s t i t u t i o n a l approach has stimulated much research and writing u t i l i z i n g systems as a basis f o r theory formulation. 1 5 4,. William Lazer and Eugene J>. Kelley Lazer and Kelley view systems i n marketing as i n - herently managerial. In the introduction to t h e i r a r t i c l e they state e x p l i c i t l y that the systems approach i s the c e n t r a l focus i n implementing the marketing management concepts Yet, the authors hedge t h e i r opinion by broadening the topic so that systems also apply operations research techniques and thinking to marketing, develop more operational concepts and useful viewpoints of mar- keting, construct e f f e c t i v e marketing models, and evolve more r e a l i s t i c and comprehensive marketing theories. In Lazer and Kelley*s opinion: Marketing i n s t i t u t i o n s and operations can be per- ceived as complex large-scale systems. Any group of marketing elements and a c t i v i t i e s that can be delineated p h y s i c a l l y or conceptually i s a system. 16 Necessarily, the authors complement t h e i r d e f i n i t i o n by making reference to Stafford Beer*s statement: 1 5 Lazer, W. and Kelley, E i J J - . , "The Systems Approach to Mar- keting," Managerial Marketing: Perspectives and Viewpoints, Lazer and Kelley (eds.), R.D. Irwin Inc., Homewood, I l l i n o i s , 1962, P. 191. 1 6 Ibid*, p. 192. 70 A system i s any c o l l e c t i o n of e n t i t i e s that can be understood as forming a coherent group. The fac t of t h e i r being capable of being understood as a coherent group i s p r e c i s e l y what d i f f e r e n - t i a t e s a system from a meaningless c o l l e c t i o n or jumble of parts and pieces...the statement at once reveals the r e l a t i v i t y • o f t h i s concept of a system. 17 The d e f i n i t i o n .is r e a l l y only a description of the central concept i n any d e f i n i t i o n of a system—that of being a related group of factors;. No mention i s made of the parameters or components of systems nor to the dynamic aspect of the system concept. 18 5y George Fisk Fisk views systems i n a more narrow manner than do some other w r i t e r s . Inherent i n the author*'s approach i s the contention that systems are mainly applicable as a teaching tech- nique. Consequently, Fisk discusses systems i n the l i g h t of showing how "General Systems" theory can be used i n the teaching of marketing!. He contends that i n the 'General Systems" approach, marketing agencies are viewed as units of an organized behaviour system composed of aggregate and constituent channels of marketing through which flow inputs of work and outputs of u t i l i t i e s . These Beer, S$, "What Has Cybernetics to do with Operational Research," Operational Research Quarterly, Vol. 10, Nof^ 1, March, 1959, p. 3. ° Fisk, G>., "The General Systems Approach to the Study of Marketing," The S o c i a l R e s p o n s i b i l i t i e s of Marketing, WyDy Stevens (ed.);, AvM'.Af. Publications, December, 1961, pi. 207. 71 are c o l l e c t e d , sorted, and dispersed according to the decisions of c o n t r o l l e r s i n enterprises which set the aggregate channel goals, subject to the constraints imposed by folkways, mores, competition, and government. Fisk defines systems as: A system i s any c o l l e c t i v i t y of traceably i n t e r - acting variables and a t t r i b u t e s . Hence, i n marketing one must be prepared to describe i n t e r - actions either i n word pictures or i n mathematical language s t i l l too unfamiliar to too many of us...i. Marketing systems a r e . . ^ s o c i a l organizations seeking purposefully ends which are often incompatible 1. 19 Fisk presents a view of systems s i m i l a r to the writer*s i n that he discusses objects, a t t r i b u t e s , and rela t i o n s h i p s as parameters to systems and inputs, outputs, and processes as neces- sary classes of system objects.' 6. Summary A cursory examination of the marketing l i t e r a t u r e would reveal the widespread usage of the concept of "system." Much time and e f f o r t has been expended i n the l i t e r a t u r e on des- c r i b i n g the functions, nature, and c h a r a c t e r i s t i c s of systems i n marketing. Yet, an adequate general d e f i n i t i o n of what a market- on ing system i s has been generally lacking u n t i l l a te i n 1961. Perhaps i t i s t a c i t l y assumed that the concept of system i s so simple that i t does not require further d e f i n i t i o n Ibid., p. 209. Refer to the a r t i c l e by Fisk, G., op; c i t . 72 f o r marketing. Perhaps the impact of Breyer*s The Marketing 21 I n s t i t u t i o n , published i n 1934, i s s u f f i c i e n t explanation. Yet, the fact that Norbert Weiner made such an impact om the 22 f i e l d of business theory with h i s Cybernetics i n 1949 would negate t h i s hypothesis as would Breyer*s l a t e r work, Quantitative Systemic Analysis and Control: Study No. 1; Channel and Channel „«»« Group Costing, which was also published i n 1949. There remains, however, the paradox of no adequate d e f i n i t i o n of the concept of marketing system u n t i l 1961, even though the concept of system i s so widely u t i l i z e d . How could so many marketing theori s t s have made such an omission? The answer to the above question might lay i n the theoris t s i n market- ing i n t e n t i o n a l l y exploring the nature and c h a r a c t e r i s t i c s of systems before attempting to define what systems are. Has the d e f i n i t i o n of systems been made to f i t the research and l i t e r a t u r e or i s the d e f i n i t i o n considered so obvious that the research and writings on the nature and c h a r a c t e r i s t i c s of systems proceeds with f u l l understanding of the meaning of systems even though the concept i s e x p l i c i t l y undefined? The writer has presented some h i s t o r i c a l perspective i n the development of the systems concept i n marketing. In sum- mation, the evolution may be presented as: A Breyer, The Marketing I n s t i t u t i o n , op. c i t . 22 Weiner, op. c i t . 2 3 Breyer, op. c i t . 73 Breyer - The use of the term "marketing system" i s employed widely. Some question arises though, whether the term i s borrowed from another writer or d i s c i p l i n e (e.g. consitutional economics). Cox - Elaborates upon Breyer*s flow concepts and indicates suggestion of basic marketing processes .(collection, s orting, dispersion). Presents a costing of marketing a c t i v i t i e s . No meaning of the term "marketing system", i s offered. Indi- cates that two-way flows are possible i n the marketing system, Alderson - Marketing i s an organized behaviour system. He gives a c l a s s i f i c a t i o n of systems i n marketing; r e c l a s s i f i c a t i o n of system a c t i v i t i e s (moving from meaningless to meaningful heterogeneity)» Par a l l e l i s m , s e r i a l i t y , and c i r c u l a r i t y are major c h a r a c t e r i s t i c s of marketing system. Offers no d e f i n i t i o n of the term "marketing system," I n d i - cates open and closed systems, Lazer and Kelley - Systems approach i s given as the cen t r a l focus i n marketing management. Systems thinking allows operations research techniques to be applied to marketing, development of more operational concepts, construction of more e f f e c - t i v e marketing models and evolution of more r e a l i s t i c and comprehensive marketing theories 74 are offered,, Also present a crude d e f i n i t i o n of marketing systems, e. Fisk - D e f i n i t i o n of marketing systems offered,. Marketing agencies said to exist within an organ- ized behaviour system. In conclusion then, a somewhat more e x p l i c i t d e f i n i t i o n of a marketing system may be stated as: A marketing system i s a meaningfully coherent and hor i z o n t a l l y and/or v e r t i c a l l y related group of in t e r a c t i n g marketing elements or a c t i v i t i e s . The above d e f i n i t i o n of a marketing system does not disagree with the general systems d e f i n i t i o n since i t was developed through examining the systems l i t e r a t u r e and then applying appropriate aspects of that l i t e r a t u r e to marketing. The d e f i n i t i o n presented i s more highly s p e c i a l i z e d than a general systems presentation i n that some aspects have been expanded f o r application to market- ing,. Implicit i n the d e f i n i t i o n are a number of factors: a. V e r t i c a l r elationships are those involving successive stages of a c t i v i t i e s while horizontal r e l a t i o n s h i p s involve those a c t i v i t i e s of a si m i l a r nature. b> Horizontal and v e r t i c a l relationships must be e x p l i c - i t l y stated since there i s a tendency on the part of many marketers to think i n terms of only horizontal r e l a t i o n s h i p s . Both or only one set of rel a t i o n s h i p s may exist at a p a r t i c u l a r period of time. 75 c. The a c t i v i t i e s observed must be coherent and meaning- f u l since any other c h a r a c t e r i s t i c s would deny the basic unity concept implied i n any system,, d. Marketing elements or a c t i v i t i e s remain loosely de- fined, f o r purposes of abstraction, as comprising i n s t i t u t i o n s (agencies) and functions, respectively. Thus, the d e f i n i t i o n implies neither the i n s t i t u - t i o n a l nor the functional approach but some sort of 24 mix between the two approaches. e. The dynamic c h a r a c t e r i s t i c of systems i s infer r e d i n the term " i n t e r a c t i n g . " f . Input, output, process, and flows components are not necessary to the d e f i n i t i o n as they are defined as p a r t i c u l a r classes of objects within systems. No discussion of systems i s , however, possible without u t i l i z i n g the classes of objects i n systems. B. A NECESSARY CHANGE IN DIRECTION OF THE STUDY It appears that the study can no longer remain neither as abstract nor as "clean" as was, perhaps, the tone to t h i s 2 4 Some c l a r i f i c a t i o n of these approaches may be found i n Duddy, E.A. and Revzan, D.A., Marketing: An I n s t i t u t i o n a l Ap- proach, second e d i t i o n , McGraw-Hill Inc., New York, N.Y., 1953, Chapter 2,. 7 6 p o i n t . I t i s p o s s i b l e to wend one*s way through volumes of the marketing l i t e r a t u r e t o d e t e c t i n f e r r a l s as to the usage of s y s - tems t h i n k i n g by a p p r o p r i a t e authors. However, such an approach i s complex, c o n f u s i n g , and q u e s t i o n a b l e i n v a l u e . Rather than take such an avenue, the w r i t e r s p e c i f i c a l l y e l e c t s e x p l i c i t statements r e g a r d i n g the nature and c h a r a c t e r i s t i c s of systems i n marketing t h a t meet those c h a r a c t e r i s t i c s t h a t f a l l i n t o the f o u r systems l e v e l s which are f e l t to e x i s t i n marketing (pp. 15-24 inclusive)„ The second a l t e r n a t i v e has one major w e a k n e s s — p r a c - t i c a l l y n o t h i n g has been w r i t t e n on the subject:. T h e r e f o r e , s i n c e the g e n e r a l tone of the l i t e r a t u r e appears to imply t h a t the i n s t i t u t i o n a l approach be taken, the w r i t e r adopts the g e n e r a l l y h e l d view. T h i s i s not to say t h a t the i n s t i t u t i o n a l approach i s the c o r r e c t one f o r i t i s p o s s i b l e to c o n c e i v e o f f u n c t i o n a l systems, commodity systems, managerial systems, and indeed, h i s t o r i c a l systems t h a t e x i s t on a l l f o u r systems l e v e l s . However, i t i s extremely d i f f i c u l t to p r e s e n t anything meaningful o r ;of v a l u e by e l e c t i n g any o t h e r approach due to the l a c k of any meaningful treatments o f these t o p i c s i n the l i t e r a t u r e . The change i n d i r e c t i o n , then, becomes a survey of the nature and c h a r a c t e r i s t i c s of the term "system" as u t i l i z e d i n the i n s t i t u t i o n a l approach. The w r i t e r e l e c t s to survey o n l y the l i t e r a t u r e d e a l - i n g w ith marketing channels i n o r d e r to p r o v i d e a comprehensive 77 treatment of one marketing system that exists on a l l four levels of systems complexity. Trading areas, functional and managerial, and other systems w i l l be, therefore, omitted. CHAPTER IV THE NATURE AND CHARACTERISTICS OF MARKETING CHANNEL SYSTEMS A6 THE MEANING OF CHANNELS AS MARKETING SYSTEMS 1,, D e f i n i t i o n of Channels as Systems An h i s t o r i c a l approach i s offered to allow some i n - sight into the evolution of the d e f i n i t i o n of channels. Neces- s a r i l y , only a few writers are taken as a representative sample. a. E. J . McCarthy ° Any sequence of i n s t i t u t i o n s from the producer to the consumer, including none or any number of mid- dlemen, i s c a l l e d a channel of d i s t r i b u t i o n . 26 McCarthy presents his well-known d e f i n i t i o n while discussing marketing agencies and agents. Perhaps as a d i r e c t r e s u l t , h i s d e f i n i t i o n revolves around agents and agencies i n 2 ^ McCarthy, E.J., Basic Marketing: A Managerial Approach, R.D,. Irwin Inc., Homewood, I l l i n o i s , 1960. 2 6 Ibid., p,. 324. 7 8 79 the channel. Implicit i n the d e f i n i t i o n , then, i s the input, process, output elements of a system since McCarthy discusses the functions of the middlemen involved, i n a preceding section. McCarthy could, however, be c r i t i c i z e d because he omitted to mention e x p l i c i t l y that flows of goods and services are involved. Also, the d e f i n i t i o n does not denote the dynamic aspect of systems—the process element that the writer f e e l s to be e s s e n t i a l to t h i s survey. Where are the ongoing a c t i v i t i e s ? ( On the p o s i t i v e side, McCarthy must be commended f o r emphasizing the i n s t i t u t i o n a l nature of d i s t r i b u t i o n i n market- ing, and f o r h i s statement that d i s t r i b u t i o n channels s t i l l e xist even i f there are no middlemen [(since the consumer may also be the producer). McCarthy's approach i s , of course, managerial yet he produces a s u f f i c i e n t l y general d e f i n i t i o n of channels of d i s t r i b u t i o n that management i s not implied. His contribution makes an excellent s t a r t i n g point f o r anyone considering the nature of channels and what they are 0 b. A. W. Shaw 2 7 Shaw i s , perhaps, the f i r s t systems thinker i n mar- keting. His own business experience suggested that systems f o r management were possible. Through extensive investigation Shaw Shaw, A.W.., Some Problems i n Market D i s t r i b u t i o n s , Harvard University Press, Cambridge, Mass., 1915. 80 "discovered" the uniformity of procedures i n spite of the vari e t y of products produced and the outward differences of the separate business organizations he observed. From h i s observations Shaw decided to devote h i s energies to the publication of the System magazine and to writing on marketing theory. Thus, Shaw perhaps propounded the f i r s t systems orien t a t i o n to d i s t r i b u t i o n (and, indeed, to: marketing) when he stated: Isolate any phase of business, s t r i k e into i t anywhere, and the invariable e s s e n t i a l element w i l l be found to be the application of motion to materials. This may be stated, i f you w i l l , as the simplest general concept to which a l l the a c t i v i t i e s of manufacturing, selling,, finance, and management can ultimately be reduced. 28 29 c. Ivan Wright and Charles Landon Wright and Landon make some useful contributions to understanding the meaning of a channel of d i s t r i b u t i o n as a sys- tem,, Of p a r t i c u l a r note were t h e i r wide usage of the term "marketing system" even though the concept i s completely unde- fined and no discussion of the nature and c h a r a c t e r i s t i c s of the term are made. 28 Shaw, A.W„, An Approach to Business Problems, Harvard University Press, Cambridge, Mass., 1916, p. 1. 29 Wright, I. and Landon, C.E., Readings i n Marketing P r i n c i - ples, Prentice-Hall Inc., New York, N.Y,., 1926. 81 Another major c h a r a c t e r i s t i c of Wright and Landon*s writing i s t h e i r usage of the term " d i s t r i b u t i v e channels." Again, both concepts remain undefined. Thus, we f i n d that systems i n marketing, or at least a systems approach to marketing, had evolved by 1926 and some thought had been devoted to channels of d i s t r i b u t i o n . d. V a i l e , Grether, and Cox A channel of d i s t r i b u t i o n may be thought of as the combination and sequences of agencies through which one or more of the marketing flows moves. 30 The authors of the above statement o f f e r the best d e f i n i t i o n of the channel of d i s t r i b u t i o n when expressed as a system concept;. Implicit i n the d e f i n i t i o n are the unity neces- sary to a l l systems and the dynamic c h a r a c t e r i s t i c necessary f o r system a c t i v i t y . Lacking from the d e f i n i t i o n are the required factors of system parameters, attributes, and elements. The r e l a t i o n a l f a c t o r between system objects i s present, however. V a i l e , Grether, and Cox also seem to detect the above weaknesses i n t h e i r d e f i n i t i o n since they state that each flow 31 i s a series of movements from one agency to another. The use of the term "flow" appears to be somewhat inadequate, however, since s p e c i f i c systems elements (input, output, and process) are o u V a i l e , R.S., et. a l . , op. c i t . , p. 121 3 1 Ibid., 82 not involved,, Later, the inadequacy i s cleared up through the discussion of channel a c t i v i t i e s ( c o l l e c t i n g , sorting, dispers- ing) „ F i n a l l y , the authors make e x p l i c i t statements to the ef f e c t that no one a c t i v i t y or agency (the sequence of ownership) 32 controls the d i s t r i b u t i o n or dominates i t . e. Converse and Jones Marketing d i s t r i b u t i o n includes those a c t i v i t i e s which create place, time, and possession u t i l i - t i e s . 33 The early d e f i n i t i o n provided by Converse and Jones t y p i f i e s much of marketing thinking at that time.^ In many writers* opinions marketing and d i s t r i b u t i o n seem to be synomymous terms. Converse and Jones, however, abstract t h e i r d e f i n i t i o n of d i s t r i - bution—no mention of channels i s made—to the l e v e l that i t encompasses every facet of marketing a c t i v i t y . Thus, the value of the Converse and Jones contribution would have to be considered more i n terms of designating d i s t r i b u t i o n as a major facet of marketing, even though d i s t r i b u t i o n i s not held to be the only marketing a c t i v i t y . As a d e f i n i t i o n of channel systems the Converse and Jones contribution would have to be severly discounted. The ex- 3 2 Ibid., p. 150. 3 3 Converse, P.D. and Jones, Fi.M., Introduction to Marketing, Prentice-Hall Inc., New York, N.Y;., 1948, p. 4. 83 treme generality of the concept permits one to read almost any meaning into i t that one cares to make. The only r e a l value of the d e f i n i t i o n l i e s i n the fac t that i t i s objectives o r i e n t e d — creation of place, time, and possession u t i l i t i e s . Thus, d i s t r i bution permits-attainment of objectives but the questions remain as to who benefits? and what a c t i v i t i e s are involved? fv v.; F:„ Ridgeway A marketing channel i s an operating system with an i d e n t i f i a b l e and d i s t i n c t i v e pattern of beha- viour...,. The economic process, beginning with the a c q u i s i t i o n of resources and running through manufacturing to the ultimate consumption i s a continuous process, but i n many industries the economic flow i s the r e s u l t of a number of organ- i z a t i o n s , each with an independent i d e n t i t y and separate l e g a l status.;.;.their a c t i v i t i e s must form one extended system. 35 Later, Ridgeway adds to the above d e f i n i t i o n by stati n g : . . . i n order f o r the system to operate e f f e c t i v e l y as an integrated whole there must be some adminis- t r a t i o n of the system as a whole, not merely administration of the separate organizations within that system. 36 Upon reading Ridgeway one i s strongly reminded of McCarthy*s channel captains, Alderson*s organized behaviour sys 3 4 Ridgeway, V.E., "Administration of Manufacturer-Dealer terns," Administrative Science Quarterly, March, 1957, ppi. 464-Sys ms 467 3 5 Ibid., p. 465. Ibi d . 84 terns, and Cox's flow concepts, Ridgeway o f f e r s an e x c e l l e n t middle ground f o r those w i s h i n g to compromise on a systems d e f i - n i t i o n o f channels, Ridgeway avoids making a c o n c i s e d e f i n i t i o n of mar- k e t i n g channels and d i s c u s s e s at some l e n g t h the systems approach. Thus, i t i s d i f f i c u l t . f o r one to e v a l u a t e h i s c o n t r i b u t i o n . The c o n t r i b u t i o n i s f e l t to be v a l u a b l e , however, because of i t s seeming u n i f i c a t i o n of s e v e r a l d i f f e r e n t w r i t e r s — n o t a b l y McCarthy, A l d e r s o n , and Cox, g, Wroe A l d e r s o n The system,.,is c l a s s e d as an e c o l o g i c a l system because of the p e c u l i a r nature of the bond among the components. They are s u f f i c i e n t l y i n t e g r a t e d to permit the system to operate as a whole, but the bond i s l o o s e enough to allow f o r the r e p l a c e - ment o r a d d i t i o n of components, 37 A l d e r s o n , l i k e Ridgeway, does not e x p l i c i t l y d e f i n e what i s meant i n h i s d e f i n i t i o n of marketing c h a n n e l s . There can be l i t t l e doubt t h a t A l d e r s o n takes a systems approach to market- i n g but i t i s extremely d i f f i c u l t to garner e x a c t l y what i t i s t h a t he i s j . t r y i n g to say. H i s d e f i n i t i o n i n v o l v e s o n l y the r e - l a t i o n a l aspect of systems and not the a t t r i b u t e s of the components. 1 F u r t h e r , although A l d e r s o n mentions components of systems, he n e g l e c t s to s t a t e what they a r e . A l d e r s o n , We, Marketing Behaviour and E x e c u t i v e A c t i o n , op., c i t . , p. 32. 8 5 h. Summary and C o n c l u s i o n s There i s a g r e a t l a c k i n t h e l i t e r a t u r e o f an adequate d e f i n i t i o n o f m a r k e t i n g c h a n n e l s t h a t employs systems as a way of e x p r e s s i n g t h e eon c e p t y N e c e s s a r i l y , a l l t h e d e f i n i t i o n s t h a t a r e c o n s i d e r e d t o be o f r e l e v a n c e , r e g a r d l e s s o f t h e i r systems c o n t e n t , a r e s u r v e y e d . I t i s r e l a t i v e l y easy t o demonstrate t h a t some elements o f systems t h i n k i n g a r e p r e s e n t but i n no d e f i n i t i o n a r e a l l t h e elements p r e s e n t . N a t u r a l l y , when one i s l o o k i n g f o r p a r t i c u l a r mean- i n g s and c o n t e n t o f meanings i n an i l l - d e f i n e d and p o o r l y s t r u c - t u r e d a r e a o f knowledge, i t i s easy f o r one t o f i n d whatever meanings one w i s h e s . Y e t , i t would have t o be a d m i t t e d t h a t s y s - tems t h i n k i n g can be w i d e l y a p p l i e d t o m a r k e t i n g . T h i s w r i t e r has de v o t e d some time t o e v a l u a t i n g t h e d e f i n i t i o n s o f f e r e d o f m a r k e t i n g c h a n n e l s t h a t employ systems t h i n k i n g and has d e c i d e d t h a t he p r e f e r s p o r t i o n s o f t h r e e : (1) Cox?'s d e f i n i t i o n because o f i t s emphasis on a g e n c i e s and f l o w s . (2) Ridgeway's c o n t r i b u t i o n because i t o f f e r s p o t e n - t i a l f o r e x p a n s i o n o f t h e d e f i n i t i o n i n a number of d i r e c t i o n s , a c c o r d i n g t o t h e r e a d e r ' s own be n t . ( 3 ) A l d e r s o n * s f o r h i s emphasis on e c o l o g y , b e h a v i o u r systems, and f l e x i b i l i t y i n r e l a t i o n s h i p s between c h a n n e l components!. 86 Perhaps a somewhat general systems d e f i n i t i o n of a marketing channel would be: A marketing channel of d i s t r i b u t i o n i s a sequence of agencies and a c t i v i t i e s through which product(s) flow(s) i n the mutual attainment of customer s a t i s - f a c t i o n and business objectives. The general d e f i n i t i o n above implies a number of f a c - tors: (1) Both agencies and a c t i v i t i e s are involved. Agen- cie s because the approach i s i n s t i t u t i o n a l and a c t i v i t i e s because of the connotation of channels being organized behaviour systems"? (2) Product flows must be involved. This requires one or more products and involves inputs, pro- cesses, outputs, feedback, controls, and r e s t r i c - tions as necessary elements i n the system. (3) Agencies form subsystems of inputs, outputs, pro- cesses, and controls and functions performed i n these elements are a c t i v i t i e s . (4) Mutual attainment of ultimate consumer s a t i s f a c - t i o n and business objectives must take place. The l a t t e r f o r s u r v i v a l and growth and the former i n recognition of the c e n t r a l importance of the concept of the market. There are also some weaknesses i n the general d e f i - n i t i o n . The worst weaknesses are the omission of the control 87 elements and the r e s t r i c t i o n s w i t h i n which channels operate, and the n e c e s s i t y to imply the f o l l o w i n g c h a r a c t e r i s t i c s : (1) Dynamic ongoing p r o c e s s e s — t h e c e n t r a l f e a t u r e of systems. ( 2 ) Parameters o f system o b j e c t s (without s t a t i n g what the o b j e c t s are);., (3) R e l a t i o n s h i p s between agencies based on t h e i r a t t r i b u t e s ( a c t i v i t i e s ) , (4) The d i f f i c u l t y of p r e s e n t i n g a meaningful and coherent d e f i n i t i o n i f a l l the omitted elements are presents; In c o n c l u s i o n , one may s t a t e t h a t i t i s extremely d i f f i c u l t to make a completely systems-oriented d e f i n i t i o n o f a marketing channel without s a c r i f i c i n g e i t h e r the marketing o r the systems c o n t e n t . However, i f one r e v e r t s back to the i n d i - v i s i b l e a c t i v i t y concept i t becomes r e a d i l y apparent t h a t the concept of channel cannot h e l p but f a l l on a l l f o u r l e v e l s s i n c e more than one pr o c e s s i s i m p l i e d as are more than one subsystem and more than one activity;'' Bv THE CHARACTERISTICS OF MARKETING CHANNEL SYSTEMS There i s a p a u c i t y o f i n f o r m a t i o n i n the l i t e r a t u r e r e g a r d i n g d e s c r i p t i o n s o f channel systems. Due to the l a c k o f 8 8 sources the survey w i l l be necessarily b r i e f and some space w i l l be devoted to f i l l i n g gaps regarding the topic at hand. 1. Lazer and Kelley Lazer and Kelley provide the best abstract of the nature and c h a r a c t e r i s t i c s of marketing systems:. According to Lazer and Kelley, marketing systems include the following com- ponent elements: a. A set of f u n c t i o n a l l y interdependent marketing r e l a - tionships among people and i n s t i t u t i o n s i n the sys- tem—manufacturers, wholesalers, r e t a i l e r s , f a c i l i - t a t i n g agencies, and consumers. b;.l Interaction between ind i v i d u a l s and firms necessary to maintain re l a t i o n s h i p s including adjustment to change, innovation, co-operation, competition, l i n k - ages, and blockages', eg' The establishment of objectives, goals, targets, b e l i e f s , symbols, and sentiments which evolve from and reinforce the i n t e r a c t i o n . This r e s u l t s i n de- termining r e a l i s t i c marketing objectives and i n s t i - tuting favourable programs, images, attitudes, opinions, and pr a c t i c e s . Lazer, Wr; and Kelley, E»£Jy, "Systems Perspective of Market- ing A c t i v i t y , " Managerial Marketing: Perspectives and Viewpoints, revised e d i t i o n , 1962, R.D1. Irwin Incy, Homewood, I l l i n o i s , p,. 19 l y 89 d. A consumer-oriented environment within which i n t e r - actions take place subject to the constraints of a competitive market economy, a recognized l e g a l and socio-economic climate, and the accepted r e l a t i o n - ships and practices of marketing functionaires. e>. Technology of marketing including communications media, c r e d i t f a c i l i t i e s , standardization and c r e d i t techniques, marketing research, and physical d i s t r i - bution techniques. Thus, each marketing system possesses a quality of being undivided'. The system per se i s complete and unbroken: 39 i t i s a t o t a l e n t i t y . The problem, of course, i s how to deter- mine what i s an unbroken state. Lazer and Kelley imply closed systems since there can be no alternative i n t h e i r definition;. Systems theory would quarrel with Kelley and Lazer*s statement since open systems are also possible and i t i s a widely held 40 tenet that business i s an open system. Thus, i t may be consid- ered a s u f f i c i e n t c r i t e r i o n of i d e n t i f y i n g a system that a l l the components of the system are guided to a common purpose'. Neces- s a r i l y , some sort of control i s required but c h a r a c t e r i s t i c a l l y such control would be neither c e n t r a l i z e d nor rigid. 4"*" 3 9 I b i d f r i P. 193. 40 Optner, l o c . ext. 41 Davidson and McCarthy might contend that c e n t r a l i z e d con- t r o l i s possible through the "channel captain." However, there are some serious questions as to how extensive and complete the control of the channel captain i s . 9 0 Two concepts that Kelley and Lazer f e e l bear upon the integrated character of the system viewpoint should be men- tioned: a. The concept of synthesizing the elements and subsys- tems involved into a whole i s required^ I t i s concerned with integrating the component parts mentioned above into a whole. b^ The concept of linkages i s necessary; Linkages r e f e r to jo i n i n g together of two or more separate, d i s t i n c t , or major systems that can function more or less independently, to create a more e f f i c i e n t "super" systemy Therefore, marketing systems can be viewed i n terms of combina- tions of groups of systems;' The view expressed by Lazer and Kelley i s e s s e n t i a l l y that held by the operations researcher. Application of the sys- tems approach i s not a matter of studying an i n d i v i d u a l segment of marketing a c t i v i t y . Rather, i t requires analysis of the ele= ments and t h e i r functions and interactions from the point of view of the contributions of the t o t a l system. McCammon and L i t t l e McCammon and L i t t l e provide an excellent discussion of channels as operating systems. In t h e i r opinion, the following 4 2 c h a r a c t e r i s t i c s of channels are possible: — McCammon, B.C. and L i t t l e , R̂ Wy, "Marketing Channels: Ana- l y t i c a l Systems and Approaches," Science i n Marketing, G. Schwartz 91 a. The channel consists of i n t e r r e l a t e d components that are structured to produce predetermined r e s u l t s . These components may include two or more of the f o l - lowing: o r i g i n a l s e l l e r s , agent middlemen£ merchant middlemen, f a c i l i t a t i n g agencies, and i n f l u e n t i a l s within the communication network, and ultimate buyers1,' Members of the channel s t r i v e to achieve mutually acceptable objectives;; The goals of i n d i v i d u a l p a r t i c i p a n t s are often incompatible but, through a process of bargaining and accommodation, divergent aspirations are reconciled and the need f o r co- operation i s recognized;, ci. A c t i v i t i e s performed by channel members are under- taken sequentially and thus i t i s l o g i c a l to think of such a c t i v i t i e s as "marketing flows." d%> A marketing channel i s an open system i n the sense that p a r t i c i p a t i o n i n i t i s voluntary; e. A single enterprise usually "administers" the channel; 1 f;: The behaviour of channel members, p a r t i c u l a r l y i n a well established channel, i s "regulated" by a code that s p e c i f i e s types of acceptable competitive beha- viour;.; The occupational code consists of informally established group norms, and a subtle but cle a r array of sanctions i s used i n most channels to control the behaviour of p a r t i c i p a n t s . (ed.), John Wiley and Sons, Inc., New York, N.Y;, 1965, pp. 329- 331. 92 According to McCammon and L i t t l e , the view of channels as an organized behaviour system has several i n t r i n s i c advantages. F i r s t , t h i s approach recognizes the fact that a channel i s a pur- posive and r a t i o n a l assemblage of firms rather than a random c o l - l e c t i o n of enterprises. (This randomness factor i s an almost universal f a c t o r that d i s q u a l i f i e s many supposed "systems" from actually being, what they claimy - L. Wy) Second, the systems concept emphasizes the existence of co-operative, as well as anta- g o n i s t i c , behaviour within the channel. Third, the channel i s perceived as a unique s o c i a l organism that r e f l e c t s the hopes, goals, and aspirations of i t s p a r t i c i p a n t s . Fourth, the market- ing channel, from a systems point of view, i s recognized as a basic "unit of competition"—a concept that broadens study of economic r i v a l r y ( i . e . a fi r m can f a i l not only because of i t s own imperfections but also because i t i s a member of the wrong system). F i f t h , the notion that a channel i s an operating system provides a basis f o r i d e n t i f y i n g disfunctions that are systems- generated (or malfunctions as employed i n the abstract of systems - L. W.). McCammon and L i t t l e , as they acknowledge, borrow larg e l y from V a i l e , Grether, and Cox, 4 2 A l d e r s o n , 4 3 McCarthy, 4 4 F i s k , 4 5 42 V a i l e , Ry;Sy, et a l . , op. c i t y 43 Alderson, Wy Marketing Behaviour and Executive Action, op. c i t y 44 M McCarthy, EyJ, op. c i t j . 45 Fisk, Gy, op. c i t . 93 Davidson, and Ridgeway. In fairness to the l a t t e r authors, i t must be pointed out that there are a number of f a u l t s i n the presentation madei. The greatest f a u l t i s the use of the term "marketing channel." Like many writers the authors seem to i g - nore the basic c h a r a c t e r i s t i c that channels are not just arrange- ments of sp e c i a l i z e d agencies but also flows of information, controls, and ownership. Thus, at any time, a physical channel has many associated channels of intangibles attached. The second weakness i s the emphasis on flows without specifying, as V a i l e , Grether, and Cox indicate, that flows may be two-way as well as one-way. That i s , flows may go eith e r f o r - ward or backward;. Further, Alderson*s statement that channels are characterized by t h e i r p a r a l l e l i s m , s e r i a l i t y , and c i r c u l a - r i t y has been la r g e l y ignored, yet i t i s f e l t that t h i s i s a major contribution to understanding channels., The f i n a l weaknesses i n McCammon and Little'*'s c o n t r i - bution l i e s i n t h e i r suggestion that channels are r e l a t i v e l y permanent i n nature. This writer f e e l s that Alderson?s idea of channels being loose c o a l i t i o n s of firms s t r i v i n g f o r mutually dependent goals i s a f a r better statement regarding the perma- nence of channels.! 4 6 Davidson, W.R. and Brown, P.L., R e t a i l i n g Management, 2nd e d i t i o n , Ronald Press Coy, New York, N.Y., 1960. 47 Ridgeway, V^E;., op;.' cit'. 94 3p Objectives of Marketing Channels The marketing channel must be goal-directed to func- 48 t i o n e f f e c t i v e l y as a system*. Unfortunately, the goals or objectives of marketing systems and subsystems are not always 49 c l e a r l y s p e c i f i e d or even compatible. To the extent that a marketing organization does not always specify objectives c l e a r l y and i s not able to co-ordinate completely various marketing sub- systems to achieve goal-directed action, then i t seems reasonable to assume that the i n d i v i d u a l organization goals f o r a l l the channel members cannot be the same or oriented i n the same d i r e c - t i o n since by the very differences i n the natures and functions, each member cannot be expected to possess i d e n t i c a l sets of goals^ Certain constants might appear i n every agency goal (eyg. customer s a t i s f a c t i o n or maximum p r o f i t a b i l i t y ) but i t could hardly be held that each member of the channel possesses a common set of goals.' Every business system, i n t r y i n g to achieve common goals, operates through subsystems which have t h e i r own respective goals[;H As a r e s u l t , there are usually c o n f l i c t s i n any business system. The concept of trade-off between subsystems to achieve Lazer, W. ? and Kelley, Ei.J., "The Systems Approach to Mar-keting," op. c i t . , p. 198. 49 It i s not possible to assume that a marketing channel can- not be a system i f one assumes that there i s a basic unity i n the very concept of channels regarding flows of products, information, ownership, negotiation, and financing. 95 greater e f f i c i e n c y of the o v e r a l l system becomes important*, A main consideration i n a systems approach to marketing channels becomes, given c e r t a i n marketing conditions and resources, how to determine the manner i n which they can be programmed to achieve the optimum goals of a l l channel members. As can be surmised, r e c o n c i l i a t i o n between goals of a l l channel members becomes neces- sary u' The systems approach, which emphasizes integration and linkages, considers the functional requirements of the o v e r a l l system and not the functional requirements of the i n d i v i d u a l sub- systems!,1 Intersubsystem concession occurs on the part of market- ing agencies (units) within the o v e r a l l business system so that major goals w i l l be achieved. This intersubsystem concession can, perhaps, be held as the synergistic e f f e c t of channel systems.' Through concession, p r o f i t s earned by the channel members are maxi- mized, 50 4.' The Scope and Complexity of Marketing Channel Systems Marketing channels can be large and complex i n extents 1 Channels can also, however, be r e l a t i v e l y small and simple, such as i n short, d i r e c t channels'. Therefore, marketing channels con- t a i n a wide var i e t y of components and i n t e r r e l a t i o n s h i p s that have i n f i n i t e v a r i a t i o n s . Also, incomplete information exists concern- Lazer and Kelley, op.' citfr, py 200, 96 ing each component of the channels system so that marketing theori s t s and managers always deal with systems under conditions of uncertainty. The large number of variables and the e x i s t i n g undertainty, together with the impact of the change i n one v a r i - able on other marketing fa c t o r s , compounds complexity. 1 5;.' Competition and Change i n Marketing Channel Systems A c h a r a c t e r i s t i c of a l l marketing channels i s that they are competitive systems. Companies with well designed market- ing systems are challenged constantly by r a t i o n a l competitors who are try i n g to l i m i t , reduce, block, or destroy the effectiveness of the company's system1. S i m i l a r l y , channels compete constantly with one another and attempt to l i m i t , reduce, block, or destroy the effectiveness of other channels!,1 However, t h i s competition i s done by agencies that u t i l i z e channels as competitive weapons1. Thus, st r a t e g i c and dynamic aspects of the channel systems are si g n i f i c a n t i . The marketing theorist, should be prepared to deal with explaining defensive and offensive a c t i v i t i e s regarding chan- nel systems i n order to maintain market positions, services, growth, and developmenti. 6v Summary and Conclusions The state of current l i t e r a t u r e dealing with marketing channels as systems i s extremely incomplete.; There are a number of areas involving the c h a r a c t e r i s t i c s of channel systems that 97 require work before a meaningful c o l l e c t i o n of writings i s a v a i l - able;; A suggested l i s t of topics might include the following: ay Intelligence networks and communication i n channel systemsy by Open and closed channel systems. cy The competitive environment of marketing channel systems. dy The scope and complexity of channels. ey Improved verbal descriptions of channelsy fv More advances on models of channelsy g.i Decision making within channel systems*;4 It i s the hope of the writer that some work w i l l be done i n the above areasy Some crude beginnings have been suggested i n t h i s section'y If one were to chose an i d e a l l i s t of c h a r a c t e r i s t i c s of marketing channel systems, the Lazer and Kelley l i s t would probably be best 1. Certainly the McCammon and L i t t l e l i s t i s much too loose f o r general usagey As pointed out i n the c r i t i q u e , Lazer and Kelley r*s contribution might well be supplemented by that of McCammon and L i t t l e y The l a f t e r s * contribution might supplement the formers* l i s t by propounding the following charac- t e r i s t i c s : a1. One aspect of marketing channels consists of i n t e r - related components (agencies) that are structured to produce predetermined results; 1 98 by; In s t r i v i n g f o r mutually acceptable goals i t should be r e a l i z e d that not a l l members may be f u l l y s a t i s - f i e d , or even p a r t i a l l y satisfiedy. cy Channels are multiform i n nature involving two-way flows of i n t e l l i g e n c e , productive e f f o r t , ownership, 51 and negotiations.' d1. Control and regulation i n channels i s a function of 52 the environment ( s o c i a l , l e g a l , p o l i t i c a l , psycho- l o g i c a l , and economic) and not just "channel captains" or mutually acceptable codes of competitive behaviour|f ey Channels are operating systems that may also perform disfunctions^ That i s , some channels and channel agencies may not be the optimum arrangement i n f u r - thering such goals as sales and p r o f i t maximization and e f f i c i e n t resource u t i l i z a t i o n ' . This f a c t be- comes evident when one considers channels of d i s t r i - bution f o r dairy products. One could not expect men;*s s h i r t s to be d i s t r i b u t e d through such channels since the remifications f o r sales and resource u t i l i z a t i o n of s h i r t s become obvious. f>. Channels compete as do the firms within them'.' Other flows are also possible i n channels'. These w i l l be discussed i n Chapter Vy 52 For a p a r t i a l treatment of the controls and rest r x c t i o n s on channels, see Kelley, Ev'Jv and Lazer, Wy, " I n t e r d i s c i p l i n a r y Contributions to Marketing," Transportation Paper No>.; 5, Univer- s i t y of Michigan, Ann Arbour, Michigan, 1962>.« 99 Ci. MODELS OF MARKETING CHANNEL SYSTEMS I.1 The Role of Systems Models The s t a r t i n g point i n a systems model i s not a goal but the model of a t o t a l functioning unit so that one can analyze and describe the unit observed;.; However, the l i b e r t y i s taken i n t h i s survey to expand the focus to include the channel within which the unit exists^ Therefore, a system model of channels, or a channel, i s a r e a l i s t i c representation of an ongoing market- ingsystem, a channel, capable of achieving multiple goals1.* Sys- tems models recognize the multifunctional and multi-dimensional units involved i n reaching marketing goals^ Systems models should also recognize the f a c t that some inputs must be allocated to non-goal directed e f f o r t ^ Inputs may be allocated to functions (as discussed i n the next chapter) which are involved i n main- tain i n g the marketing channel i t s e l f , achieving supporting market- ing services, extending action which permit the use of e f f e c t i v e marketing " s t r i k i n g power," but which are not d i r e c t l y goal- oriented functions i n the sense of s a t i s f y i n g customer needs and wants i n the short run. If such a c t i v i t i e s help to ensure the e f f e c t i v e u t i l i z a t i o n of resources i n the long run, then the i n - puts may be viewed as goal-directed;; A system model i s based on the conception of a l l of the marketing elements or a c t i v i t i e s working together on an i n t e - grated and co-ordinated basis f o r the purpose of achieving the 100 objectives of the o v e r a l l system and not just f o r the purpose of achieving a subgoal (i^ey the goal(s) of the i n d i v i d u a l units i n the channel) y Therefore, the system model which takes into consideration c o n f l i c t s between subgoals i s not as i d e a l i z e d a 53 type of model as the goal model?;1 2y The Approaches to Construction of Marketing Systems Models and the Uses of Marketing Models 54 Dr?. Lazer proposes two approaches to the construc- t i o n of marketing systems modelsy F i r s t , however, Lazer e x p l i c i t l y states that models are viewed as systems. Taken as systems, the approaches to model building are: ay Abstraction - perception of a marketing s i t u a t i o n i n a way that permits the recognition of r e l a t i o n - ships between a number of variablesy by Realization - the process i s reversed, s t a r t i n g f i r s t with a l o g i c a l l y consistent conceptual system and then introducing some aspect of the r e a l worldy Several uses of models i n marketing are suggested 55 by Lazer: a; Marketing models provide a frame of reference f o r solving marketing problems. 5 3 Lazer, Wy, "The Role of Models i n Marketing," Journal of Marketing, A p r i l , 1962, pp. 9-14y 54 _ . .j Ibidy 101 b# Marketing models may play an e x p l i c a t i v e r o l e , and as such, they are suggestive and f l e x i b l e ^ c. Marketing models are useful aids i n making predic- tions; 1 di. Marketing models can be useful i n theory constructions e[.j Marketing models may stimulate the generation of hypotheses, which can then be v e r i f i e d (sic) and t e s t e d . 5 6 No c r i t i q u e or amplification w i l l be offered to Dr.] Lazer f*s contribution. 1 It i s f e l t to be a sound and basic approach to model building and i s , as f a r as can be ascertained, the only work on the subject 1? 3© Mathematical Simulation of Marketing Channels The work being done on t h i s topic i s just beginning. While there have been a few contributions i n the area, notably two, much remains to be done. The two major contributions to mathematical models of channel systems are: 57 ay Forrester The approach taken by Forrester, as well as those taken by h i s contemporaries i n the f i e l d of mathematical simu- 5 6 Ibid;, p'.. 249. Forrester, JW;, " I n d u s t r i a l Dynamics: A Major Breakthrough fo r Decision Makers," Harvard Business Review, Voly* 36, No. 4, July-August, 1958, p. 37v 102 l a t i o n of channels, i s largely managerial. His approach to the topic i s i n t e r e s t i n g and possesses p o t e n t i a l f o r the systems approach'.'1 As such, the l i b e r t y i s taken to discuss Forrester,*s work here*? In the early 1950,* s Forrester began to simulate com- pany systems on computers^ He uses the term "company system" i n a very broad sense of including the firm's r e l a t i o n s h i p s with suppliers and intermediaries as well as i t s i n t e r n a l operations. Consequently, Forrester simulates a major part of the firm's mar- keting channels;.1 He j u s t i f i e s t h i s approach by arguing that "manufacturing, finance, d i s t r i b u t i o n , organization, advertising, and research have too often been viewed as separate s k i l l s and 58 not as part of a u n i f i e d system." Thus, Forrester states that the task of management i s to i n t e r r e l a t e the flows of information, materials, manpower, money, and c a p i t a l equipment so as to achieve a higher standard of l i v i n g , s t a b i l i t y of employment, p r o f i t to the owners, and rewards appropriate to the success of the manager;1 Therefore, h i s models are programmed to depict i n t e r r e l a t i o n s h i p s between these f i v e flows.' The development of t h i s type of model requires data on the number and types of firms i n the channel, on the delays i n decisions and actions that are c h a r a c t e r i s t i c of the channel, and on the participants* ordering and inventory policies.' Given these and other required inputs i n appropriate mathematical form, the programmer can simulate the behaviour of a channel over time^ Ibid 1?, p. 38y 103 b. Balderston and Hoggatt Balderston and Hoggatt, i n t h e i r study of the lumber industry, designed a model to show how l i m i t s on market i n f o r - mation, decentralization of market decisions, and i n s t i t u t i o n a l alignments af f e c t and are affected by economic forces. The writers l i s t s i x types of variables: (1) Economic forces (price, quantity, cost, and de- mand data) , (2) Commodity flows (designed to r e f l e c t distribu&ion patterns), (3) Accounting and cash flow data (including an aco- v,:. counting structure f o r each f i r m i n the channel and an appropriate mathematical treatment of cash flow patterns) 1, (4) Decision r u l e data (for each type of firm i n the channel) V: (5) Information flows between firms*? (6) I n s t i t u t i o n a l forces and norms of behaviour. The Balderston and Hoggatt model (both writings deal with the same model) simulates i n t e r a c t i o n patterns that are often Balderston, F.E. and Hoggatt, A.C,;, Simulation of Market Processes, Iber Special Publications, Berkeley, C a l i f o r n i a , 1962; and "Simulation Models: A n a l y t i c a l Variety and the Problem of Model Reduction," Symposium on Simulation Models: Methodology and Applications to the Behavioral Sciences, South-Western Pub- l i s h i n g Co., C i n c i n n a t i , Ohio, 1963, c i t e d i n Gy Schwartz, op, cit:,, p. 333. 104 too complicated to reduce to a n a l y t i c a l solution^ Consequently, the concept of a system i n equilibrium and the notion of achiev- ing an optimal solution are ideas that have to be discarded i n many cases. Simulation models, however, provide a basis f o r de- termining the extent to which s p e c i f i e d alternatives y i e l d im- proved r e s u l t s , and thus, they have considerable s i g n i f i c a n c e fo r management. Further, marketing theor i s t s are permitted i n - sights into evaluation of alternative hypotheses regarding channel behaviour. c. Summary and Conclusions 51 It would appear, as Schwartz contends, that a l l channel simulation models have several common c h a r a c t e r i s t i c s : (1) They are programmed on d i g i t a l computers and are designed to depict comprehensively the operating c h a r a c t e r i s t i c s of a system. (2) A l l simulation models are dynamic rather than s t a t i c . (3) If the decision maker, or the t h e o r i s t , accepts the assumptions included i n the model, the prob- able consequences of alternative courses of action can be predicted. A model by the following authors appears to be very s i m i l a r to those established by Forrester, Balderston, and Hoggatt. Amstutz, Ay and Tallman, G.Bs.!, "Dynamic Simulation Applied to Marketing," Marketing Keys to P r o f i t s i n the 1960*s, W.K. Dolva (ed.), American Marketing Association, Chicago, I l l i n o i s , 1959, pp. 78-95. 51 Schwartz, G., op* c i t y , pj.'i 333. 105 (4) Simulation models provide a basis f o r i s o l a t i n g system-generated f l u c t u a t i o n s . Thus, although channel simulation models are s t i l l i n the experimental stage, they represent a l o g i c a l mathematical extension of the systems concept i n marketing and complement the work of e a r l i e r theorists'. The orien t a t i o n has been, i n channel simulation models, larg e l y s p e c i a l i z e d f o r one l e v e l of system complexity and managerial, yet i t i s a r e l a t i v e l y easy task to foresee how such models might be applied to more l e v e l s i n the near future. 4. Verbal Descriptions of Channel Systems Models There are a number of e f f o r t s devoted to verbal de« sc r i p t i o n s of channel systems!. The descriptions, while considered true models i n the sense of helping to analyze and understand, lack much of the a n a l y t i c a l r i g o r and preciseness found i n simu- l a t i o n models^ However, verbal descriptions are e f f e c t i v e devices fo r detecting and emphasizing the complexity of i n t e r f i r m a l i g n - ments. Further, such models also provide a basis f o r i s o l a t i n g grossly i n e f f i c i e n t linkages. McCammon and L i t t l e l i s t the most prominent writers i n the f i e l d of verbal descriptions of channel systems: 52 ay1 V a i l e , Grether, and Cox - Contributions of a "mar- keting flows" concept and notational systems used V a i l e , R.S., et alfr, op. c i t . , pp. 121-133. 106 i n channel descriptions that permit p l o t t i n g i n t e r a c t i o n patterns i n channels and f a c i l i t a t e i d e n t i f y i n g the span of ownership and locus of power i n a channel. b. B r e y e r u o - Contributed some elaboration of notational systems. P a r t i c u l a r l y noted f o r h i s unit market- ing channel concept*^ and h i s emphasis on explor- ing the quantitative analysis and control of CLE channels. 0^ 56 c. Revzan - Notational channel-systems description that provides a basis f o r symbolically i n d i c a t i n g the types of intermediaries p a r t i c i p a t i n g i n the channel as well as the extent to which each par- t i c i p a t e s i n s p e c i f i e d functional flows. The system used by Revzan also provides a basis f o r i d e n t i f y i n g the span of ownership and locus of power i n the channel. One might also include a mention of Clewett's c o l - 57 l e c t i o n of writings that discuss channel systems models. The Breyer, R.F., Quantitative Systemic Analysis and Control: Study No. 1, op. c i t . , Chapter 2. 54 Ibid., p. 29. rbidy, p. 7. 56 Revzan, D.A., Wholesaling i n Marketing Organizations, op. c i t . , p. 112. 57 Clewett, RyM., Marketing Channels f o r Manufactured Products, R.D. Irwin Inc., Homewood, I l l i n o i s , 1954. 107 Clewett approach i s highly managerial i n orientation but three a r t i c l e s are p a r t i c u l a r l y relevant: 58 a>. Duncan - Duncan l i s t s f actors necessary f o r channel se l e c t i o n and inherently views the selection process as a system, 59 b. Sessions - Sessions* contribution might be classed with that of Duncan, However, the point of view i s broader and allows a more r i g i d analysis, 60 c. Sevin - Like most works dealing with channel cost analysis, the or i e n t a t i o n i s managerial with some s l i g h t mentions of systems theory. The above three writings are i n t e r e s t i n g i n that they present some aspects of the l i t e r a t u r e that round out the d i s - cussion of channels and systems. ^ 8 Duncan, D,J., "Selecting a Channel of D i s t r i b u t i o n , " Mar- keting Channels f o r Manufactured Products, op>, c i t , , p. 367, 59 Sessions, R,E,, " E f f e c t i v e Use of Marketing Channels," op, c i t . , p. 404, 60 Sevin, C.H,, " A n a l y t i c a l Approach to Channel P o l i c i e s — Marketing Cost Analysis," op, c i t , , p. 433, CHAPTER V THE PROCESS ELEMENT IN MARKETING CHANNEL SYSTEMS As stated i n the introductory chapter, and r e i t e r - ated i n the abstract of the concept of system, the process element i n systems i s an e s s e n t i a l c h a r a c t e r i s t i c . As long as the process component remains missing from the a c t i v i t i e s of input, output, and feedback-control there i s no system. Yet, one or more of the other elements may not be present i n the system at a p a r t i c - u l a r point of time and the system w i l l s t i l l be recognized as such. Thus, the dynamic ongoing a c t i v i t y i n systems i s e s s e n t i a l . In t h i s chapter the process element i n systems w i l l be examined. Of p a r t i c u l a r concern w i l l be the need to sort out the process a c t i v i t i e s i n marketing i n order to organize and under- stand the input, output, feedback-control, and r e s t r i c t i o n compo- nents i n the marketing system that are discussed i n the next chapter. 108 109 A; DEFINITION AND DISCUSSION: THE MARKETING PROCESS By d e f i n i t i o n , a system must imply the process com- ponent. Further, since the process component i s so necessary to understanding systems thinking i t i s necessary to define i t s mean- ing i n terms of marketing. Duddy and Revzan 1 make, perhaps, the best contribution to marketing systems thinking since they unite the functional and i n s t i t u t i o n a l approaches by s t a t i n g that: It becomes c l e a r that an i n s t i t u t i o n a l approach to the study of marketing comprehends a study of these elements: (1) functional a c t i v i t y , (2) s t r u c t u r a l organization..!.. 3 In Duddy and Revzan's view, marketing functions are homogeneous groups of a c t i v i t i e s which are necessary to the per- formance of the general function of d i s t r i b u t i o n . Thus, marketing comes to be defined as a process of exchange involving a series of a c t i v i t i e s necessary to the movement of goods or services into consumption. Functional analysis c a l l s attention to the basic nature of these operations. Forms of marketing organization may change, and the r e l a t i v e importance of the d i f f e r e n t functions may be affected by changing conditions, but the basic functions w i l l always be present i n any society i n which exchange i s c a r r i e d on. 1 Duddy, E.A. and Revzan, DyA., op. c i t . , p. 20. o S t r i c t l y speaking, Duddy and Revzan r e f e r to t h e i r approach as " i n s t i t u t i o n a l i s m , " wherein " i m p l i c i t i n the d e f i n i t i o n i s the notion of marketing as a process r e s u l t i n g from the functioning of co-ordinated market structures!." (p. 17) o Duddy and Revzan, locy c i t . 110 The above writers are the only ones who e x p l i c i t l y make such a stand and they provide a strong base upon which to view marketing processes. Unique to t Duddy and Revzan i s the u n i f i c a t i o n of the functional and i n s t i t u t i o n a l approaches so that the v i t a l systems c h a r a c t e r i s t i c of unity i s present. More common to systems think- ing i n marketing i s t h e i r emphasis on a c t i v i t i e s taken as compo- nents of a whole (or system elements i n the t o t a l system), the necessity to s t r i p the bulk away to get at the basic nature of marketing and the stress on dynamic r e l a t i o n s h i p s . In order to abstract t h e i r d e f i n i t i o n somewhat, the author has taken the l i b e r t y to redefine Duddy and Revzan 1s d e f i - n i t i o n of the marketing process as: The sum of the a c t i v i t i e s performed by the agencies, including users and ultimate consumers, i n marketing channel systems. The r e d e f i n i t i o n permits avoiding heavy dependence on one writer, allows a wider basis f o r comparison, and allows a somewhat better f i t to the d e f i n i t i o n of channel systems proposed e a r l i e r by the writer: A marketing channel of d i s t r i b u t i o n i s a sequence of agencies and a c t i v i t i e s through which product(s) flow(s) i n the mutual attainment of customer s a t i s - f a c t i o n and business o b j e c t i v e s , 4 This survey, page 8 6 , I l l The r i s k i s run of biasing the survey seriously by adopting the above d e f i n i t i o n of the marketing process*. However, the functional and i n s t i t u t i o n a l approaches are united (a neces- sary step i n i t s e l f ) , systems thinking i s maintained and avoidance of strong flavourings of current writers i n marketing i s somewhat lessened so that a consensus may be more e a s i l y arrived at. By THE MARKETING FUNCTIONS AS PROCESS ELEMENTS The marketing functions operate through various kinds of marketing agencies or structures. Thus, functional a c t i v i t y i s purposeful a c t i v i t y . Marketing i n s t i t u t i o n s , or agencies, are functional i n the sense that they give expression to the a c t i v i - t i e s of groups; of* businessmen—activities which are necessary f o r the group*s existence, f o r i t s improvement, or f o r achieving i t s goals. Since i t i s implied i n the d e f i n i t i o n of the market process that marketing a c t i v i t i e s mean marketing functions (p. 7 ) the functions performed i n marketing w i l l be examined. It i s held that the marketing functions are performed within some i n s t i - t u t i o n a l framework. It i s assumed that each type of agency i n a channel performs d i f f e r e n t functions from others i n the channel and that the grouping of functions performed by each defines the agency type. 112 One possible source of confusion involves d i s t i n - guishing between marketing functions and marketing flows. The l i t e r a t u r e seems to be strangely s i l e n t on t h i s point. According to Bartels: Marketing i s not merely i n s t i t u t i o n a l a c t i v i t i e s but a process by the performance of which the i n s t i t u t i o n s are related . In accordance with t h i s d e f i n i t i o n , a concept of the marketing a c t i v i t y replaces somewhat that of the a c t i v i - t i e s of marketing, because the separate actions involved i n the transfer of goods and t i t l e s are consolidated into a process or act. The subject i s thus no longer merely described but i s interpreted. 5 To the extent that marketing i s a process, the func- tions performed within the process constitute subprocesses. No d i s t i n c t i o n , then, i s made between basic marketing processes and marketing functions. The two are synonymous terms involving iden- t i c a l a c t i v i t i e s . We come to an impasse, as stated by Duddy and Revzan, wherein "the various marketing authorities cannot seem to agree on a d e f i n i t i v e l i s t of marketing functions." 1. Bucklin Bucklin attempts to analyze channels by setting up c r i t e r i a . Thus, his analysis begins with i d e n t i f i c a t i o n of the D Bartels, R., The Development of Marketing Thought, R.D. Irwin Inc., Homewood, I l l i n o i s , 1962, p, 184. 6 Duddy, E.A. and Revzan, D.A., op. c i t . , p. 21. 7 Bucklin, L.P., "The Economic Structure of Channels of D i s t r i - bution," Marketing; A Maturing D i s c i p l i n e , M.T. B e l l (ed.), American Marketing Association, Chicago, I l l i n o i s , 1960, pp. 379- 385. 113 functions performed within a marketing channel. The c r i t e r i a Bucklin uses to i s o l a t e the relevant functions are: a. The a c t i v i t i e s included i n each function must be so related as to make i t necessary f o r some firm to organize and d i r e c t the performance of a l l or none of the act i v i t i e s , , b 0 The a c t i v i t i e s included i n each function must have s u f f i c i e n t scope to allow the firm to s p e c i a l i z e i n them to the exclusion of a l l others, c. The a c t i v i t i e s included i n each function should incur substantial cost, d. Each a c t i v i t y undertaken i n the marketing channel must be placed i n one, and only one, functional cate- gory. On the basis of these c r i t e r i a Bucklin i s o l a t e s the following functions: a. Transit (T) - A l l a c t i v i t i e s required to move goods between two points. b. Inventory (I) - A l l a c t i v i t i e s required to move goods in and out of storage, sort, and store them. c. Search (S) - A l l a c t i v i t i e s required to communicate o f f e r s to buy, s e l l , and transfer t i t l e , d. . Persuasion (P) - A l l a c t i v i t i e s incurred to influence the b e l i e f s of a buyer or s e l l e r , e. Production (Pr) - A l l a c t i v i t i e s necessary to create a good with any desired set of s p e c i f i c a t i o n s . 114 By using t h i s set of functions, Bucklin i s able to diagram the structure of most e x i s t i n g channels. The f a m i l i a r manufacturer, wholesaler, r e t a i l e r , consumer channel, as an example, may be diagrammed symbolically as: (PrITSP) • (SITSP) — • (SISP) ^ (STI) The manufacturer, wholesaler, r e t a i l e r , and consumer are desig- nated respectively by the bracketed symbols (PrITSP), (SITSP), (SISP), and (STI), i n d i c a t i n g that the manufacturer performs a l l f i v e marketing functions; the wholesaler performs four but must search twice to contact both manufacturers and r e t a i l e r s ; the r e t a i l e r performs three but must also search twice to maintain l i a i s o n with wholesalers and consumers; and the consumer performs three marketing functions when dealing with r e t a i l e r s , Bucklin's contribution i s unique i n that i t permits rapid d i s s e c t i o n of the a c t i v i t i e s engaged i n the channel and, further, designates the functions performed by each agency. His contribution i s considered a valuable method of sorting out the channel process and arranging the a c t i v i t i e s involved i n i t . The weaknesses i n Bucklin*s contribution l i e i n the facts that he assumes that the "product" i s homogeneous at each successive l e v e l of output; that the nature of the output can be defined rigorously; that plant capacity can be measured pre c i s e l y ; and that most of the costs incurred by the firm are "production" rather than " s e l l i n g " costs. These assumptions r a r e l y hold i n the r e a l world. 115 2. McGarry McGarry l i s t s a number of functions that he c a l l s his " s i x functions of marketing,," They are l i s t e d at t h i s stage since they somewhat complement the writings of the preceding author. a. The contactual function: the searching out of buyers and s e l l e r s . McGarry f e e l s that an elaborate and often unnoticed mechanism i s needed to maintain con- tact between a l l of the people who use and produce both the items and t h e i r components, supplies, and equipment. b. The p r i c i n g function: i n our society, the p r i n c i p a l device f o r a l l o c a t i n g our supply of scarce resources. c. The merchandising function: the work of gathering information about consumer desires and t r a n s l a t i n g i t into practicable product designs. d. The propaganda function: the conditioning of the buyers or of the s e l l e r s to a favourable attitude toward the product or i t s sponsor. e. Physical d i s t r i b u t i o n : the brute job of transporting and storing goods to create time and place u t i l i t y . f . The termination function: something of a c a t c h - a l l category that includes both the process of reaching 8 McGarry, E.D., "Some Functions of Marketing Reconsidered," Theory i n Marketing, Cox, R. and Alderson, W. (eds.), R.D. Irwin Inc., Chicago, I l l i n o i s , 1950, pp. 263-279. 116 agreement i n the case of f u l l y negotiated trans- actions, and a l l of the contingent l i a b i l i t i e s that remain with the s e l l e r a f t e r delivery takes place,* McGarry*s l i s t i s more widely applicable than that of Bucklin and, of course, avoids many of the weaknesses found i n the l a t t e r * s work. However, McGarry probably never intended his l i s t to be applied s t r i c t l y to a l i s t i n g of functions per- formed by marketing channels. Yet, because of i t s wide applica- b i l i t y , the McGarry l i s t might be considered an excellent general framework to u t i l i z e when discussing marketing channel functions. As Hollander 9 points out, since many of McGarry*s functions are concerned with intangibles, probably room w i l l always exist f o r debate concerning the means used to achieve marketing objectives. The most i n t e r e s t i n g point that Hollander makes, however, i s that these functions might be the r e a l output of marketing. 1 0 3. V a i l e , Grether, and Cox 1 1 The above writers designate the processes that organ- ize agencies into combinations and sequences known as channels to be: Hollander, S.C., "Measuring the Cost and Value of Marketing," Marketing and the Behavioral Sciences, P, B l i s s (ecp, A l l y n and Bacon Inc., Boston, Mass,, 1963, p. 542, 1 0 Page 136, t h i s survey. 1 1 V a i l e , R.S,, et a l . , op. c i t . , p. 134. 117 a. C o l l e c t i n g - The process by which goods available in small l o t s are brought together into large l o t s . Thus, there are two forms of c o l l e c t i o n : c o l l e c t i o n of large l o t s of a single good and c o l l e c t i o n of large assortments of varied goods. b. Sorting - Involves the f a c t that most buyers need to select out of the unsorted mass s p e c i f i c items that f i t t h e i r requirements,. Again, two processes are involved: the sorting of goods into smaller l o t s , each of which meets ce r t a i n s p e c i f i c a t i o n s as to quality; and secondly, i f the buyer needs a variety of goods or of grades, his l o t must be made up to include the p a r t i c u l a r assortment he needs. c. Dispersing - The process of moving l o t s closer to possible consuming markets; and the process of d i v i d i n g the stocks b u i l t up through c o l l e c t i n g and sorting into very small u n i t s . Unique to the V a i l e , Grether, and Cox::approach i s that i t permits one to v i s u a l i z e the marketing process quickly and i n f a i r l y simple terms. Further, the approach permits one to think i n terms of inputs and outputs, controls, feedbacks, and processes within a well defined and e a s i l y understood conceptual framework. The above approach has been expanded upon by a number of writers, notably Wroe Alderson. 118 4. Wroe Alderson Alderson suggests that marketing consists of matching heterogeneous supply and heterogeneous demand. In his view, matching can be divided into three phases of shaping, f i t t i n g , and s o r t i n g : A d a. Shaping and F i t t i n g - Concerned with the form and s p e c i f i c application of a product. b. Sorting - A means of accomplishing e f f e c t i v e matching, composed of: (1) Sorting out - the process of grading the hetero- geneous production of farms, mines, fo r e s t s , or f a c t o r i e s into homogeneous l o t s according to established standards. (2) Accumulation - the process of c o l l e c t i n g substan- t i a l supplies of the homogeneous products which were f i r s t sorted out. (3) A l l o c a t i o n - the process of breaking down the pre- vious accumulation of homogeneous supplies into smaller quantities. (4) Assorting - the process of putting together unlike commodities i n order to better match consumer or user demand. 19 Alderson, We, Marketing Behaviour and Executive Action, op. c i t . , Chapters 7 and 8. 1 3 Ibid., pp. 201-211. 119 Thus, Alderson has contributed to an understanding of the marketing process by extending the e a r l i e r work of V a i l e , Grether, and Cox. Like the l a t t e r writers, Alderson proposed a method of approaching the complexity of the marketing process that allowed quick discernment and ready categorization of the 14 a c t i v i t i e s found i n marketing. In f a c t , i n a l a t e r work, Alderson coins the phrases "transactions" and "transvections" to further c l a r i f y his e a r l i e r contribution. Transactions are defined as a product of the double search i n which customers are looking f o r goods and suppliers are looking f o r customers. A transvection i s the unit of action f o r the system by which a single end product i s placed i n the hands of the consumer a f t e r moving through a l l the intermediate sorts and transformations from the o r i g i n a l raw materials i n the state of nature. The resemblance to B u c k l i n r s work i s most s t r i k i n g at t h i s stage i n Alderson's theory. The approach i s d e f i n i t e l y that of systems and the description bears heavy usage of systems terminology. There can be l i t t l e doubt that Alderson i s t r y i n g to explain the process element i n the marketing system by u t i l i z i n g a c t i v i t i e s i n a systems sense. Although his approach i s functional, Alderson implies that the functions he describes take place within an i n s t i t u t i o n a l environment when:_he states that: Alderson, WOJ Dynamic Marketing Behaviour, R.D. Irwin Inc., Homewood, I l l i n o i s , 1965, p. 75. 120 The f u n c t i o n a l i s t approach i s concerned with the functioning of systems, and the study of structure i s in c i d e n t a l to the analysis and interpretations of functions. Every phase of marketing can be understood within the frame- work of some operating system, 15 Thus, Alderson*s contribution i s included here since i t f i t s into the d e f i n i t i o n s of marketing systems (p. 74) and marketing process, and complements the i n s t i t u t i o n a l approach. I n s t i t u - tions do not constitute the marketing process—marketing functions do by acting through i n s t i t u t i o n s . 5. A. W. Shaw The idea of the functional approach must be credited 16 to Shaw, Shaw's o r i g i n a l l i s t of marketing functions appear as f o l l o w s : x ^ a. Sharing the r i s k , b. Transporting the goods. c. Financing the operations. d. Communication (sic) of ideas about the goods ( s e l l i n g ) . e. Assembling, assorting, and reshipping. Shaw associated the performance of these functions s o l e l y with middlemen. 15 Alderson, W., Marketing Behaviour and Executive Action, op. c i t . , p. 1. 1 6 Shaw, A.W., op. c i t . , p. 703. 1 7 Shaw, A.W., An Approach to Business Problems, Harvard Uni- v e r s i t y Press, Cambridge, Mass., 1916, p. 371. 121 No extensive treatment of Shaw w i l l be presented here. It i s important to note, however, that although he o r i g i - nated a functional analysis of the marketing process his contri- bution i s otherwise very incomplete, as evidenced by the work of Duddy and Revzan. 18 6. Duddy and Revzan Duddy and Revzan provide one of the best surveys of the functional approach to marketing and compare the h i s t o r i c a l Shaw's f i v e f u n c t i o n s 1 9 to Ryan's 2 0 120 functional elements. However, after surveying the l i t e r a t u r e , the writers adopt the following l i s t of functions: a. Merchandising - That function of marketing which em- phasizes the use of strategy by either s e l l e r s or buyers (other than the ultimate consumer), or by both working together (in co-ordination), i n order 91 to secure the advantages of innovation, 22 b. Buying - That function of marketing which includes: 18 Duddy, E. A. and Revzan, D.A., op. c i t . , p. 21. 1 9 Shaw, A.W., loc^ c i t . 20 Ryan, F.W., "Functional Elements of Market D i s t r i b u t i o n , " Harvard Business Review, July, 1935, pp.. 205-224. 2 1 Duddy and Revzan, op. c i t . , p. 36. 2 2 Ibid., p. 53. 122 (1) Purchases of raw materials and supplies f o r pro- cessing into f i n i s h e d goods by manufacturers; by public and private i n s t i t u t i o n s f o r consumption; and by the ultimate consumer f o r personal use. (2) Purchases by wholesalers and r e t a i l e r s f o r resale. 23 c. S e l l i n g - The function of supplying consumers or users. 24 d. Transportation - the means by which the physical d i s t r i b u t i o n of goods i s accomplished. 25 e. Storage - The exercise of human foresight by means of which commodities are protected from deterioration and surplus supplies are c a r r i e d over f o r future con- sumption i n seasons of s c a r c i t y . 26 f . Standardization and grading - The values attached to the product or the service i n terms of i t s uses and the use of the values f o r sorting ungraded prod- ucts into l o t s that are si m i l a r i n variety, s i z e , q u a l i t y , etc. 27 g. Financing - The function of advancing the goods or services, or of claims on them, and the confidence 23 Ibid., P. 53. 24 Ibid., P. 55. 25 Ibid., P. 67. 26 Ibid., P. 86. 27 Ibid., P. 88. 123 1 that the lender has i n the borrower's a b i l i t y and willingness to repay the loan when i t i s due. 28 h. Communication - The use of various means or symbols for conveying information to, or exercising influence over, buyers and s e l l e r s . 29 i . Risk bearing - The assumption of uncertainty i n regard to cost, l o s s , or damage. The l i s t that Duddy and Revzan provide i s d i f f i c u l t to analyze since the authors e x p l i c i t l y state that t h e i r l i s t r e s u l t s from surveying the literature:. Perhaps, i t i s the fac t that the functions were arrived at through use of surveys that they do not seem to be highly i n t e r r e l a t e d . Perhaps, i t i s be- cause of t h e i r s i g n i f i c a n t difference from the other functions previously outlined that Duddy and Revzan's functions seem to be unusual. Regardless of what seems to be the "matter" with the l i s t , i t i s accepted as a useful contribution to understanding the marketing process. The l i s t i s comprehensive i n the sense that i t i s a summary of what was written to the time of i t s i n - ception, i t i s well-adapted f o r being f i t t e d to an i n s t i t u t i o n a l framework, and i t i s broad and diverse i n i t s scope. Ibid., p. 104. Ibid., p. 112. 124 7 . R. F. Breyer "The task of marketing i s to get from production to consumption." In the sense Breyer uses the term, marketing i s p r i - marily a physical function made necessary because of the separa- ti o n of production and consumption. That separation i s the r e s u l t of s p e c i a l i z a t i o n i n production, and the need f o r marketing service i s a consequence of s p e c i a l i z a t i o n . Breyer spoke of marketing as the "pri c e " we pay fo r the advantages of s p e c i a l i z a t i o n i n production and, therefore, as an a c t i v i t y that must be performed i f we are to enjoy the benefits of s p e c i a l i z a t i o n . Breyer, of course, attempted to view marketing as only one process. His attempt would have to be discounted because i t i s f e l t to be incomplete. There are, however, specialized func- tions i n marketing which are f e l t to f i t well to Breyer^s very basic approach. 8. Clark and Weld Clark regarded marketing as the process of concentra- t i o n , equalization, and dispersion. In collaboration with Weld, he wrote: To get products from growers into the hands of distant users involves three important i s o l a t e d processes which may be c a l l e d concentration, equalization, and dispersion.31 30 Breyer, R.F., The Marketing I n s t i t u t i o n , op. c i t . , p. 4. 31 Clark, F.E. and Weld, L.D.H., Marketing A g r i c u l t u r a l Products, McMillan Co., New York, N.Y., 1932, p.13. 125 Implied i n the above concept are both the nature of the market i n which the a c t i v i t y takes place and some idea of the s i g n i f i c a n c e of the a c t i v i t y . The concept of concentration and dispersion implied that producers and consumers are separated and that marketing i s the process of bringing products together from numerous widely scattered sources and of d i s t r i b u t i n g them to many equally widely scattered consumers,.' Equalization implied that the same process i s pertinent to markets separated by time. As can be seen, Clark and Weld t r y to group the mar- keting functions i n order to f a c i l i t a t e understanding. Their practice of t i t l i n g groups of functions as processes i s permissible as long as one does not view marketing as a process. As soon as the l a t t e r approach i s taken, confusion sets i n . By using a con- cept l i k e "groups of functions" or "groups of a c t i v i t i e s " much pot e n t i a l confusion can be avoided. C. SUMMARY AND CONCLUSIONS The possible components of the marketing process have been outlined and defined. It i s s i g n i f i c a n t to note the lack of consensus about them and the variances i n the approaches taken. Duddy and Revzan and Shaw may be categorized as being i n one camp by vir t u e of t h e i r somewhat s i m i l a r l i s t s of functions. Bucklin and McGarry may be placed i n an intermediate camp, and Alderson, 126 Va i l e , Grether, and Cox, and Clark and Weld, placed i n yet a t h i r d camp. It i s not intended that the reader should understand that Duddy and Revzan propose l i s t s of functions d i f f e r e n t from those of Alderson or McGarry—or any other t h e o r i s t — s u c h that the differences are marked. A l l that i s intended by surveying such l i s t s i s to demonstrate to the reader how d i f f i c u l t i t i s to reconcile or sort out the many divergencies noted. Any one of the l i s t s of functions describing the marketing process may be u t i l i z e d with probably as much success as any other. The important factor to r e a l i z e i s that the l i s t chosen provides a method of breaking down the marketing process into i t s component a c t i v i t i e s so. that marketing inputs, outputs, and controls may be applied. The technique i s e n t i r e l y a concep- t u a l one so that comprehension and understanding of marketing channels systems may be f a c i l i t a t e d . It may be somewhat of a disappointment to the reader to f i n d that t h i s study does not attempt to choose a l i s t of "best" functions that describe the marketing process. Some time was devoted to the evolution of such a l i s t but the e f f o r t was aban- doned because of the d i f f i c u l t i e s i n resolving differences between l i s t s . However, i t i s f e l t that some poten t i a l l i e s i n the eight l i s t s that have been presented i n t h i s chapter. Perhaps, the f o l - lowing common c h a r a c t e r i s t i c s might be necessary before an " i d e a l " l i s t of marketing functions could be formed: 127 1. A c h e c k l i s t of necessary c r i t e r i a required to evaluate the tenative function of i n t e r e s t . In t h i s study one would hope f o r a l i s t that avoided reference to a p a r t i c - u l a r firm or type of firm, Rather, generalization would 32 be the goal. Bucklin makes a valuable but limited contribution with h i s l i s t . 2. Emphasis on both physical d i s t r i b u t i o n and the supporting or f a c i l i t a t i n g a c t i v i t i e s . Most writers i n marketing u t i l i z e such an approach. 3. Use of some sort of notational method of describing the systems, either through verbal descriptions, mathematical re l a t i o n s h i p s , or systems models. 4. Univ e r s a l i t y i n application so that the systems envisaged and described would be able to be integrated with the rest of marketing theory. 5. U t i l i z a t i o n of both s p a t i a l and time dimensions so that some minimal basis might exist f o r sorting out what i s observed or hypothesized. 6. Acceptance of the fact that success might never be attained, for as Alderson notes, about a l l that i t i s safe f o r one to say about marketing channels when describing them i s that they are groups of firms which constitute a loose c o a l i t i o n engaged i n exp l o i t i n g j o i n t opportunity i n the market. J 3 2 Bucklin, L.P., op. c i t . , p. 381. 3 3 Alderson, W., "The Development of Marketing Channels," R.M. Clewett (ed.), Marketing Channels f o r Manufactured Products, op. c i t . , p. 38. y CHAPTER VI INPUT-OUTPUT ANALYSIS IN CHANNEL SYSTEMS Some tenative inputs and outputs f o r channel systems are surveyed i n t h i s chapter. The term "tenative" i s employed f o r , as Fisk states, there i s an input and an output (in market- ing systems) which even the best minds thus f a r cannot f u l l y s p e c i f y . 1 A; A PERSPECTIVE FROM ECONOMICS Before surveying the marketing l i t e r a t u r e regarding inputs and outputs i t was f e l t that a useful perspective might be gained from the d i s c i p l i n e of economics. 2 In t r a d i t i o n a l economic theory, various economic resources are transformed by business firms to other forms and 1 Fisk, G., op. c i t . 2 Inman, M.K., Economics i n a Canadian Setting, Copp-Clark Publishing Co. Ltd., Toronto, Ontario, 1959, p. 473. 128 129 and sold to other firms, households, i n d i v i d u a l s , or the govern- ment. The resources purchased by a given firm are inputs and those sold by i t are outputs. The transformation of resources does not necessarily involve a change i n t h e i r outward appear- ance. Thus, a r e t a i l e r who buys from a wholesaler and s e l l s to ultimate consumers, transforms (adds u t i l i t y to) the goods i n which he deals; yet, the commodities may r e t a i n t h e i r s i z e , shape, colour, and texture. Further, an output of one firm may be an input to another. Basic inputs, however, remain as raw materials, labour services, managerial and entrepreneurial a b i l i t i e s , and c a p i t a l . Economics views inputs and outputs i n an i n s t i t u t i o n a l view. This approach permits a valuable framework f o r marketing,. As w i l l be demonstrated, most marketing writers adopt the approach taken by economics. BP. THE CONTRIBUTIONS OF MARKETERS. The perspective from economics i s presented i n order f o r the reader to see how marketing has borrowed from the older d i s c i p l i n e . The perspective i s important since i t frequently re- appears i n marketing writings. 130 1. George Fisk Fisk contends that we have some reasonably good meas- ures of inputs i n channels i f we look to the following factors: a. Man-hours of labour. b. Wages paid. c. Investmento d. E l e c t r i c a l and other forms of energy consumed. While Fisk never intended to treat t h i s topic compre- hensively, as evident i n the brevity of his contribution, one would be forced to concede that his treatment i s somewhat super- f i c i a l . The l i s t , however, serves as a s t a r t i n g point and allows comparison to other l i s t s to be presented. Noticeably lacking from the Fisk l i s t i s the input of managerial and entrepreneurial resources. Perhaps, however, these inputs might be included i n man-hours of labour? Fisk*s l i s t of outputs i s somewhat more comprehensive. 4 In the l i s t he includes: a. Ideas i n the form of aspirations and expectations. b. S a t i s f a c t i o n derived from consumption? c. Sales. d? Purchases value added. e. Number and tonnage of physical units delivered over channel units of time. ° Fisk, G., op. c i t . , py 209. 4 Ibid., 131 It was pointed out i n the perspective from economics that the resources purchased by a given f i r m are inputs and those sold by i t are outputs. The transformation of resources does not necessarily involve an outward change i n t h e i r appearance. Fisk has gone beyond these basic premises by making reference to ideas and s a t i s f a c t i o n as intangible outputs that do not f i t i n with what Beckman and Buzzell might term "value-added" con- cepts;- (These writers are discussed l a t e r i n t h i s chapter.) The l i s t , however, i s well adapted to marketing despite i t s departure from more conventional economic theory. 7 2; Duddy and Revzan Duddy and Revzan consider inputs to mean economic Q resources and r e f e r the reader to a l i s t by Engle 1; In the writers* eyes inputs r e f e r to a l l services performed i n moving goods from producer to customer. The orien t a t i o n i s , therefore, f u n c t i o n a l . This writer would have to r e j e c t Duddy and Revzan*s contribution somewhat because they f a i l to specify the possible Beckman, T.N., "The Value-Added Concept as a Measure of Output," Advanced Management, A p r i l , 1957, pp. 6-8. 6 B u z z e l l , R.D., Value Added by Ind u s t r i a l D i s t r i b u t o r s and Their Productivity, Bureau of Business Research Monograph No. 96, Columbus, Ohio, 1959. 7 Duddy, E.A. and Revzan, D.A., op. c i t . , p. 5621; 8 . . . Engle, N.H., "Measurement of Economic and Marketing E f f i - ciency," Journal of Marketing, A p r i l , 1941, pp. 335-349. 132 inputs i n marketing. However, t h e i r l i s t of functions performed i n the marketing process 9 may also be considered a l i s t of inputs into channels. Since i t was found that the functions must, by d e f i n i t i o n , be considered process components, then no e f f e c t i v e l i s t of inputs i s f e l t to be contributed. However, as H o l l a n d e r 1 0 states, these functions may be the r e a l output of marketing. 3. Beckman 1 1 Beckman attempts to apply his value-added concept to marketing. His view greatly complements that of Duddy and Revzan i n that he f e e l s costs are a measure of input. The approach taken does not involve a l l four l e v e l s of systems complexity outlined since Beckman makes s p e c i f i c reference to the costs of the firm. However, much l i k e Fisk, Beckman i d e n t i f i e s the following inputs and implies that they might f a l l on a l l four levels of systems complexity since they may be found generally i n a l l d i s t r i b u t i o n systems—not within only p a r t i c u l a r agencies: a. Products shipped or delivered. b. Materials. c. Supplies. d. Containers, ev Fuel. 9 Refer page 109 t h i s study. 1 0 Hollander, S.C., op. c i t . 1 1 Beckman, T.N., op. c i t . , pp. 6-8. 133 f . E l e c t r i c a l energy.1 g. Contract work and labour. Thus, Beckman proposes a basic l i s t of inputs. His contribution resembles much of what economists have held as basic resources influencing the p r i c i n g decision of the firm with the number of items longer than that f o r economics but generally f i t - t i n g within the same broad framework. Like Fisk, Beckman omits mentioning inputs of mana- g e r i a l and entrepreneurial e f f o r t ; And, l i k e Fisk, Beckman might have inferred that the labour factor includes the l a t t e r resources. Beckman contends that outputs are the value-added factors to the o r i g i n a l inputs. S p e c i f i c a l l y , value-added repre- sents the difference between the s e l l i n g value of the products shipped or delivered and the cost of materials, supplies, and con- tainers, plus the cost of f u e l , purchased e l e c t r i c a l energy, and contract worky The difference represents the net value of the operations and i s presumed to measure the value-added by the pro- cess of manufacture,. If one takes the l i b e r t y to assume a broad approach to Beckman|?s writing, one might assume that value-added i s the sum of the differences between the f i n a l s e l l i n g value of the f i n i s h e d product and the t o t a l costs less p r o f i t s of the resources allocated to that product; The above d e f i n i t i o n would accrue the following advan- tages: 134 a-; It i s the best reasonably available absolute measure of the value created i n the process of whatever part of the economy i s being measured.' b. Value-added i s the best reasonably available r e l a t i v e measure of value created that can be used f o r proper and f a i r l y accurate comparisons of anything else simi- l a r l y measured!. c£1 Use of the concept helps the viewing of costs i n t h e i r proper perspective. While costs are a measure of i n - put, value-added i s a measure of the output produced by such costsv Of course, the Beckman approach would i n f e r that one could quantitatively measure value-added. However, i f one con- siders Fisk*s l i s t of ideas and s a t i s f a c t i o n s as outputs, then part of Beckman;*s hypothesis becomes workable. 12 4. Wroe Alderson In Alderson;* s approach, inputs and outputs are viewed as the terminal points of some process. In a continuous process involving whole sequences of steps, the beginning and ending points of the process can be selected a r b i t r a r i l y according to the con- venience of the analyst, and inputs and outputs defined corres- pondingly i n r e l a t i o n to these terminal points'. Alderson, W., Marketing Behaviour and Executive Action, op. cit'., pp. 65-70. 135 Looking at a complete d i s t r i b u t i o n channel, inputs may be defined as beginning i n the manufacturer's warehouse and the f i n a l outputs as the goods at the time they are passed into the possession of consumers scattered throughout the country. 13 According to Alderson inputs and outputs both i n - volve transactions between an organized behaviour system and i t s environment. Both inputs and outputs are highly d i f f e r e n t i a t e d and are determined both,by environmental factors and by factors 14 i n t e r n a l to the system. Every organized behaviour system i s s e l e c t i v e i n what i t takes from the environment and also i n the outputs that i t produces1. The acceptance of an intake from the environment i n - volves a variety of r i s k s and assumptions about the continuity of the operation (of the channel).; It i s assumed that a l l the materials acquired w i l l eventually be processed and w i l l emerge at the other end as outputs';- The inputs are without value except on the basis of t h i s assumption. From t h i s point, Alderson goes to great lengths to discuss the operation of input-output systems but never once de- fine s s p e c i f i c a l l y what inputs or outputs are nor does he l i s t s p e c i f i c inputs or outputs'. Alderson provides, however, an ex- c e l l e n t framework within which to view systems^ 1 3 Ibid., p. 66. 14 The treatment of the environmental factors i s b r i e f l y re- viewed i n Lazer, W., "The Role of Models i n Marketing," Journal of Marketing, as reproduced i n Lazer, Wy and Kelley, E^J^, Managerial Marketing: Perspectives and Viewpoints, op. c i t . 136 According to Alderson, progressive d i f f e r e n t i a t i o n of products and services i s the key to defining the values created by marketing. This approach i s based on the assumption that each individual's need i s d i f f e r e n t from every other i n d i v i d u a l ' s need i n one or more respects. Thus, the basic economic process i s the gradual d i f f e r e n t i a t i o n of goods up to the point at which they pass into the hands of the consumers. Under t h i s concept there i s no basic difference i n the kind of u t i l i t y created by production and that created by d i s t r i b u t i o n . Every step along the way consists of shaping a set of materials more and more com- p l e t e l y to f i t the needs of s p e c i f i c consumers. This step-by-step d i f f e r e n t i a t i o n of an economic good i s the essence of the economic 15 process as recognized by Chamberlain and others. F i t t i n g a product to a need consists of the two phases of shaping and so r t - ing. The f i r s t changes the physical character of the goods but does not create any u t i l i t y i n the absence of the other. The second causes the goods to become part of various assortments i n the hands of wholesalers, r e t a i l e r s , and consumers. Each as- sortment exists at., a s p e c i f i c time and place. 5. H o l l a n d e r 1 6 Hollander takes a broad approach to i d e n t i f y i n g the inputs and outputs involved i n the marketing system that seems to — — Chamberlain, N.W., The Firm: Micro-Economic Planning and Action, McGraw-Hill Co. Inc., New York, N.Y., 1962, p. 191. X6 Hollander, S.C., op. c i t . , p. 529. 137 f i t the c r i t e r i o n of f a l l i n g on a l l four l e v e l s of system com- p l e x i t y . He i d e n t i f i e s time, e f f o r t , and money on the part of consumers as basic inputs and McGarry 1s s i x functions as basic outputs. The writer finds Hollander's contribution to be ex- tremely i n t e r e s t i n g i n that i t i s both i n s i g h t f u l and simple. The great advantage of the Hollander a r t i c l e l i e s i n the ease with which the concepts can be grasped and the seeming complete- ness i n i d e n t i f y i n g the system inputs and outputs. However, the writer rejects part of Hollander's argu- ment since functions are e x p l i c i t l y held to mean processes, i n th i s paper. At the r i s k of creating a grave error i n surveying the l i t e r a t u r e , the writer chooses to categorize McGarry*s s i x functions as process elements (p. 115) and not as system outputs. Perhaps, the meaningful difference between processes and outputs might l i e i n processes adding u t i l i t y to the service or product involved and i t i s the added u t i l i t y which constitutes the output. 1 17 6. Cox, Goodman, and Fichandler This very excellent work treats the topic of marketing inputs and outputs extensively and well. P a r t i c u l a r emphasis i s placed, as the t i t l e implies, on marketing channels of d i s t r i - bution. Cox, R., Goodman, C.S., and Fichandler, T.C., D i s t r i b u t i o n i n a High-Level Economy, Prentice-Hall, Inc., Englewood C l i f f s , New Jersey, 1965. 138 Cox, Goodman, and Fichandler do not t r y to est a b l i s h a l i s t of inputs and outputs i n d i s t r i b u t i o n channels. Rather, they survey and evaluate the l i t e r a t u r e i n marketing and related areas; question what d i s t r i b u t i o n i s and the functions i t per- forms; examine how good a job d i s t r i b u t i o n does; and attempt to look at d i s t r i b u t i o n ' s place i n the future. The writer finds t h i s work to be an extremely valuable framework f o r examining channels of d i s t r i b u t i o n and parts of the 18 book are useful i n examining system inputs and outputs. C; SOME RELATED WRITINGS There are a number of writings i n the marketing l i t e r - ature that are strongly related to the topic of t h i s survey but are not s t r i c t l y applicable. The writer f e e l s that because of t h e i r i n t e r e s t i n marketing inputs and outputs they should be mentioned. However, due to these writings not s t r i c t l y f i t t i n g the subject matter of t h i s survey because of being too broad i n scope or dealing only with marketing costs, only a very cursory glance w i l l be devoted to them. 18 P a r t i c u l a r l y Chapters 2, 3, 4, 5, 7, 8, 10, 11, and 12. 139 19 1. Stewart and Dewhurst These writers perhaps are pioneers i n studying empirically the inputs and outputs of marketing channels. The authors* orientation f i t s the c r i t e r i o n of dealing with the four leve l s of systems complexity and attempts to trace the 1929 flow of commodities from o r i g i n a l sources to f i n a l buyers 1. Unfortunately, the study c i t e d i s oriented to analyz- ing and appraising the costs involved without specifying or cate- gorizing what i t i s that they are attempting to evaluate. Had a l i s t of c l a s s i f i c a t i o n s of inputs and outputs been provided that did more than i d e n t i f y costs, then some more useful data may have been provided. 2. H. B a r g e r 2 0 Barger, l i k e Stewart and Dewhurst, uses a highly simi- l a r approach but attempts to deal only with the wholesale and r e t a i l segments of marketing channels. S i m i l a r l y , the same c r i - tique may be applied to Barger*s s t u d y — a noticeable lack of generic c l a s s i f i c a t i o n of inputs and outputs although he did employ the more t r a d i t i o n a l c l a s s i f i c a t i o n s of land, labour, c a p i t a l , and entrepreneurship. Some question e x i s t s , though, 19 Stewart, P.W. and Dewhurst, J.F., Does D i s t r i b u t i o n Cost Too Much?, Twentieth Century Fund, New York, N.Y., 1938. 2 0 Barger, H., D i s t r i b u t i o n ' s Place i n the American Economy, Princeton University Press, Princeton, New Jersey, 1955. 140 as to what Barger contributed to the l i s t of inputs and outputs, After a l l , his objective was to determine'the cost and value of s p e c i f i c channel agencies, not to provide the d e f i n i t i v e l i s t of marketing inputs and outputs. 21 3. Buzzell B u z z e l l , much l i k e the others who precede him, at- tempts to measure s t a t i s t i c a l l y and empirically the economic contribution of a selected type of wholesale d i s t r i b u t o r i n terms of the concept of value-added by d i s t r i b u t i o n channels. 22 4. Waugh and Ogren Waugh and Ogren suggest including farmer's costs for machinery and purchased supplies as necessary cost elements i n d i s t r i b u t i o n channel inputs. As stated, a l l of the above studies have something to contribute but a l l are, perhaps, too much involved with costs, units counted, or value-added to specify what inputs and outputs are involved. ^ X Buzzell, R.D., op. c i t . 22 Waugh, F.V. and Ogren, K.E., "An Interpretation of Changes in A g r i c u l t u r a l Marketing Costs," American Economic Review, May, 1961. 141 D. SUMMARY AND CONCLUSIONS Perhaps i t i s not necessary to specify what i s meant by marketing channel inputs and outputs. Perhaps Alderson has the correct idea i n constructing a conceptual framework within which inputs and outputs must be treated. Certainly, a l l of the writers surveyed i n the second section dealing with related writ- i n g s — B u z z e l l , Waugh and Ogren, Barger, and Stewart and Dewhurst— f e l t that a complete l i s t i n g i s not necessary. This writer f e e l s that Alderson makes the best general contribution to understanding marketing channel inputs and out- puts. At no time did he attempt to determine the cost of d i s t r i - bution channels nor j u s t i f y the existence and structure of them. Yet, the view taken and hypotheses expounded are concise and i n - s i g h t f u l and i t i s r e l a t i v e l y easy to discern what i t i s that Alderson i s ta l k i n g about. Despite Alderson 1s a b i l i t y to avoid being "pinned down," t h i s writer f e e l s that some sort of a rough c l a s s i f i c a t i o n of marketing channel inputs and outputs should be established f o r no other purpose than to c l a s s i f y what i t i s that i s meant by the use of the term "inputs and outputs i n channels." The writer pro- poses the following: Marketing channel inputs - The energizing or start-up forces that provide any given subsystem within a channel, or the channel system i t s e l f , with i t s operating ma- t e r i a l . 142 Marketing channel outputs - The purposes f o r which marketing channel systems, or subsystems, objects, a t t r i - butes, and relationships are brought together. Thus, inputs may take one or more of the following forms: 1. The r e s u l t of a previous process, i n l i n e , s e r i a l l y . This view i s held by t r a d i t i o n a l economic theory wherein the output of one firm i s an input f o r another. 2. The re s u l t of a previous process, randomly generated. Thus, changes i n the objects, a t t r i b u t e s , and r e l a t i o n - ships with which the system may deal might occur purely on the basis of chance. Changes i n demand for fashions resemble chance v a r i a t i o n . 3. The r e s u l t of a process that i s being reintroduced. An example may be found i n women's fashions where the "fash- ion cycle" concept appears to apply. Outputs, on the other hand, are the factors toward which systems and subsystems are organized. Outputs, then, may be used syno- nymously with the term "objectives," Since i t was indicated that one cannot d i f f e r e n t i a t e between marketing and production costs i n a channel of d i s t r i b u - t i o n , no attempt w i l l be made to do so. It i s argued that u l t i - mately a l l production costs are represented i n the cost of the f i n a l product to the ultimate consumer or user. Thus, a l i s t of the inputs and outputs involved might resemble the following: 143 Tenative Inputs Man-hours of labour Wages paid Investment E l e c t r i c a l and other forms of energy consumed Ideas i n forms of aspirations and expectations Products shipped or delivered Containers and packages u t i - l i z e d Supplies consumed Tenative Outputs Ideas i n form of aspirations and expectations S a t i s f a c t i o n derived from con- sumption Sales Purchases value added Number and tonnage of physical units delivered over time P r o f i t s CHAPTER VII THE ROLE SYSTEMS THINKING PLAYS IN MARKETING CHANNELS LITERATURE SUMMARY AND CONCLUSIONS A. SUMMARY The writer has attempted to describe how the a p p l i - cation of systems analysis might further understanding of the l i t e r a t u r e dealing with channels of d i s t r i b u t i o n . Of necessity, a survey approach was required in order to present the current state of the l i t e r a t u r e , to f a c i l i t a t e a meaningful c r i t i q u e , and to provide a base upon which further elaboration could be constructed. The treatment cannot be considered to be complete; hence, the o r i e n t a t i o n to surveying and exploring a representa- t i v e sample of the l i t e r a t u r e . Hopefully, the major marketing writers were considered and t h e i r contributions evaluated. The writer finds i t i n t e r e s t i n g to note that most marketing writers employ systems thinking i n t h e i r writings. Almost a l l , either e x p l i c i t l y or i m p l i c i t l y , make reference to systems concepts. Perhaps, t h i s ubiquitousness of systems i s 144 145 to be expected. After a l l , systems are postulated as a general conceptual device f o r structuring and understanding i l l - s t r u c t u r e d , complex, and confusing s i t u a t i o n s . Probably the greatest value t h i s study w i l l have w i l l be to present the more relevant writings regarding systems i n marketing channels i n one place. The reader may disagree with those factors which the writer has considered important to systems and to marketing channels but at least a framework i s available f o r c r i t i c i s m . This alone i s a contribution of some value be- cause nothing has been done to date to unify the writings that have so f a r evolved. One might b r i e f l y summarize the marketing l i t e r a t u r e regarding the usage of systems thinking i n marketing channels as being incomplete but showing signs of promise. Although there are a great many i r r e g u l a r i t i e s and inconsistencies and despite the fact that there i s l i t t l e concensus as to what comprises the systems concept i n marketing, some writers have made some very r e a l contributions. B a s i c a l l y , the general tone of the evolving l i t e r a t u r e of systems thinking regarding marketing channels i s de s c r i p t i v e . A broad conceptual framework appears to be developing within which the f r o n t i e r s of marketing knowledge might be advanced—not only regarding channels but also the entire spectra of marketing. Per- haps the s i t u a t i o n i n marketing i s working i n the same d i r e c t i o n as Boulding observes when he states: 146 General Systems Theory i s the skeleton of science in the sense that i t aims to provide a framework or structure of systems on which to hang the f l e s h and blood of p a r t i c u l a r d i s c i p l i n e s and p a r t i c u l a r subject matters i n an orderly and coherent corpus of knowledge. 1 P a r t i c u l a r l y noticeable by t h e i r absence are a number of necessary writings i n the l i t e r a t u r e . The writer would l i s t the following as r e q u i s i t e s before any comprehensive treatment of marketing channel systems may be made: 1. An extensive and thorough treatment of what i s meant by the concepts of systems i n marketing, marketing systems, the nature and c h a r a c t e r i s t i c s of marketing systems, and the components of marketing systems. 2. An integration of marketing models and marketing systems as complementary and, perhaps, i d e n t i c a l concepts. 3. A c l a r i f i c a t i o n of what i s involved i n the process, i n - put, and output concepts i n marketing systems and a l i s t - ing of the factors involved. 4. A more completely structured and well-ordered treatment regarding the objects, a t t r i b u t e s , and relationships involved i n marketing systems. 5. An attempt made to place the quantitative aspects of mar- keting theory and practice within an e x p l i c i t l y defined systems framework. Having treated these subjects f u l l y , then p o t e n t i a l exists f o r sp e c i a l i z e d writings on such areas as channels, trading Boulding, K.E., op. c i t . , p. 208. 147 areas, managerial systems, etc. At the present time no e f f e c t i v e conceptual framework exists to r e l a t e a l l the parts i n a we l l - structured whole. By CONCLUSION It would appear to be reasonable to conclude that much of the marketing channels l i t e r a t u r e u t i l i z e s systems con- cepts incompletely. The factors that would seem to cause t h i s problem are an incompleteness i n the use of terms or of under- standing the t o t a l framework within which systems analysis i s postulated; and an absence of any attempt to r e l a t e the writings of various authors within some wort of well defined conceptual framework. As indicated, most marketing writers make at least p a r t i a l usage of systems thinking. This i s to be expected since systems can involve generalization and conceptualization without involving reference to s p e c i f i c t opics. As such, the writer found the technique to be extremely valuable i n evaluating the l i t e r a - ture dealing with marketing channels. The usage of a general systems framework provides an excellent set of benchmarks f o r evaluation without committing oneself to a p a r t i c u l a r writer or to a very broad but meaningless set of c r i t e r i a which the .surveyor must use to sort out what i t i s that he i s reading. 148 A few marketing writers seem aware of the need to order and structure what i t i s they are involved i n explaining. Halbert, Alderson, and Fisk seem to attempt such str u c t u r i n g . Each man makes errors and each seems to have something unique to say: Alderson for his generalizations that define the environ- ment within which systems operate; Fisk f o r his emphasis on under- standing marketing; and Halbert f o r his attempts to provide some sort of broad structure within which a l l marketing knowledge e x i s t s . Certainly, t h i s ordering process i s recognized by many marketers but caution seems to be exercised. Commitment to the systems approach might exclude a l l other approaches. If other approaches exist then the opportunity cost of omitting them may prove to be too high to be j u s t i f i e d . In any event, systems analysis i s a useful technique but should not be considered a panacea f o r solving a l l the problems of understanding and evalu- ating the marketing l i t e r a t u r e . The great f a u l t of systems analysis seems to l i e i n i t s being open to wide differences i n i n t e r p r e t a t i o n . Without a consensus as to the content of the method i t becomes a d i f f i c u l t task to defend or explain the thinking that i s involved. Thus, th i s writer had to present a highly personal and complex abstract of his inter p r e t a t i o n of systems thinking. The degree to which systems thinkers can establish the necessary consensus, l o g i c a l l y , w i l l determine the ultimate value of the method. 149 The writer found that i t i s e n t i r e l y possible to apply the systems concept to marketing. The choice of marketing chan- nels as a subject was u t i l i z e d because of the abundance of writing on the subject and because the channels concept appears to be so central to the development of marketing theory and p r a c t i c e . It i s to be hoped that other applications of systems theory to mar- keting w i l l be made. Cle a r l y , i t i s possible to make the a p p l i - cation. SOME TENATIVE HYPOTHESES As i n any exploratory study, an e f f o r t should be made to construct some hypotheses for more detailed and more rigorous studies that may follow. In order to conform to t r a d i t i o n , the writer proposes some topics that w i l l require research. However, no thought w i l l be made as to whether the hypotheses are testable. The reader's own ingenuity w i l l have to determine whether such hypotheses may be tested. 1. Marketing i s a system comprised of inputs, processes, outputs, controls, feedbacks, and r e s t r i c t i o n s 1 . 2. Within the marketing t o t a l system, there are subsystems defined i n terms of the i n t e r r e l a t i o n s h i p s of t h e i r ob- je c t i v e s or processes. 3. The attributes of marketing systems and subsystems can be at least p a r t i a l l y l i s t e d and described. 150 4. The c r i t e r i o n to employ to determine whether or not a l l the a t t r i b u t e s , r e l a t i o n s h i p s , and objects of a system have been considered, i s to determine i f the system i s closed or open, 5, The inputs and outputs of marketing systems can be spe- c i f i e d , defined, and l i s t e d although with a lack of pre c i s i o n and lack of a b i l i t y to determine i f a l l the inputs and outputs are included^ 6, The application of quantitative methods to marketing w i l l greatly aid development and comprehension of marketing systems, 7. Systems thinking i n marketing i s the l o g i c a l next step i n the development of marketing as a slowly evolving science. BIBLIOGRAPHY BOOKS Alderson, W0, Dynamic Marketing Behaviour, R.D. Irwin Inc., Homewood, I l l i n o i s , 1965. , Marketing Behaviour and Executive Action, R.D. Irwin Inc., Homewood, I l l i n o i s , 1957. Barger, H., Di s t r i b u t i o n ' s Place i n the American Economy, Princeton University Press, Princeton, New Jersey, 1955. Bartels, R., The Development of Marketing Thought, R.D. Irwin Inc., Homewood, I l l i n o i s , 1962. Breyer, R.F., The Marketing I n s t i t u t i o n , McGraw-Hill Inc., New York, New York, 1934. , Quantitative Systemic Analysis and Control; Study No. 1; Channel and Channel Group Costing, College Offset Press, Philadelphia, Pennsylvania^ 1949. Chamberlain, N.W., The Firm: Micro-Economic Planning and Action, McGraw-Hill Co. Inc., New York, New York, 1962. Clark, F.E. and Weld, L.D.H., Marketing A g r i c u l t u r a l Products, McMillan Co., New York, New York, 1932. Clewett, R.M., Marketing Channels for Manufactured Products, R.D. Irwin Inc., Homewood, I l l i n o i s , 1964. Converse, P.D. and Jones, F.M., Introduction to Marketing, Prentice-Hall Inc., New York, New York, 1948. Cox, R. and Alderson, W., Theory In Marketing, R.D. Irwin Inc. Chicago, I l l i n o i s , 1950. Cox, R., Goodman, C.S., and Fichandler, T.C., D i s t r i b u t i o n i n a High-Level Economy, Prentice-Hall Inc., Englewood C l i f f s New Jersey, 1965. Davidson, W.R. and Brown, P.L., Re t a i l i n g Management, second ed i t i o n , Ronald Press Co., New York, New York, 1960. 151 152 Duddy, E.A. and Revzan, D.A., Marketing: An I n s t i t u t i o n a l Approach, second e d i t i o n , McGraw-Hill Inc., New York, New York, 1953.. Fisher, R.A., The Design of Experiments, Hafner Publishing Co., New York, New York, 1951. Halbert, M., The Meaning and Sources of Marketing Theory, McGraw-Hill Inc., New York, New York, 1965, Helmer, 0. and Resecher, N., On the Epistemology of the Inexact Sciences, The RAND Corp., Santa Monica, C a l i f o r - nia, 1958. Hitch, C,J., On the Choice of Objectives i n Systems Studies, The RAND Corp., Santa Monica, C a l i f o r n i a , 1960. ~ Howard, J.A., Marketing Management: Analysis and Planning, revised e d i t i o n , R.D. Irwin Inc., Homewood, I l l i n o i s , 1963. Inman, M.K., Economics i n a Canadian Setting, Copp-Clark Publishing Co. Ltd., Toronto, Ontario, 1959. McCarthy, E.J,, Basic Marketing: A Managerial Approach, R.D. Irwin Inc., Homewood, I l l i n o i s , 1960. Newell, A., Shaw, J.C., and Simon, H.A., Elements of a Theory of Human Problem Solving, The RAND Corp., Santa Monica, C a l i f o r n i a , 1959., , et a l . , Report on a General Problem Solving Program, The RAND Corp., Santa Monica, C a l i f o r n i a , 1959. Optner, S.L., Systems Analysis, Prentice-Hall Inc., Englewood C l i f f s , New Jersey, 1960. , Systems Analysis f o r Business and Ind u s t r i a l Problem Solving, Prentice-Hall Inc., Englewood C l i f f s , New Jersey, 1965. , Systems Analysis f o r Business Management, Prentice- H a l l , Inc., Englewood C l i f f s , New Jersey, 1960. Polya, G., How to Solve I t , Doubleday and Co. Inc., Garden Ci t y , New York, 1957. Shaw, A.W., An Approach to Business Problems, Harvard Univer- s i t y Press, Cambridge, Massachusetts, 1916. 153 , Some Problems i n Market D i s t r i b u t i o n s , Harvard University Press, Cambridge, Massachusetts, 1915. Stewart, P.W. and Dewhurst, J.F., Does D i s t r i b u t i o n Cost Too Much?, Twentieth Century Fund, New York, New York, 1938. ' Va i l e , R.S., Grether, E.T., and Cox, R., Marketing i n the American Economy, The Ronald Press Co., New York, New York, 1952. Weiner, N., Cybernetics, J . Wiley and Sons, New York, New York, 1948. Wohlstetter, A.J., Systems Analysis Versus Systems Design, The RAND Corp., Santa Monica, C a l i f o r n i a , 1958. Wright, I. and Landon, C.E., Readings i n Marketing P r i n c i p l e s , Prentice-Hall Inc., New York, New York, 1926. B. SPECIAL PUBLICATIONS Alderson, W., "Discussion of Behavioral D i s c i p l i n e s i n Teach- ing and P r a c t i c i n g Marketing," The S o c i a l R e s p o n s i b i l i t i e s of Marketing, W.D. Stevens (ed.;, American Marketing Association Publications, December, 1961. Amstutz, A. and Tallman, G.B., "Dynamic Simulation Applied to Marketing," Marketing Keys to P r o f i t s i n the 1960*s, W.K. Dolva (ed.), American Marketing Association, Chicago, I l l i n o i s , 1959. Balderston, F.E. and Hoggatt, A.C., Simulation of Market Pro- cesses, Iber Special Publications, Berkeley, C a l i f o r n i a , 1962. , "Simulation Models: A n a l y t i c a l Variety and the Prob- lem of Model Reduction," Symposium on Simulation Models: Methodology and Applications to the Behavioral Sciences, South-Western Publishing Co., Ci n c i n n a t i , Ohio, 1963. Bucklin, L.P., "The Economic Structure of Channels of D i s t r i - bution," Marketing: A Maturing D i s c i p l i n e , M.T. B e l l (ed.), American Marketing Association, Chicago, I l l i n o i s , 1960. 154 Buzzell, R.D., Value Added by I n d u s t r i a l D i s t r i b u t o r s and Their Productivity, Bureau of Business Research Mono- graph No. 96, Columbus, Ohio, 1959. Fisk, G., "The General Systems Approach to the Study of Marketing," The S o c i a l R e s p o n s i b i l i t i e s of Marketing, W.D. Stevens ^ed.), The American Marketing Association, Ann Arbour, Michigan, 1962. Handy, R, and Kurtz, H., "Introduction and Some General Comments on Behavioral Research," A Current Appraisal of the Behavioral Sciences, Behavioral Science Council, Great Barrington, Massachusetts, 1963. Lazer, W. and Kelley, E.J., " I n t e r d i s c i p l i n a r y Contributions to Marketing Management," Marketing and Transportation Paper No. 5, The University of Michigan, Ann Arbour, Michican, 1962. ARTICLES Alderson, W., "The Development of Marketing Channels," Marketing Channels f o r Manufactured Products, R.M. Clewett (ed«), R.D. Irwin Inc., Homewood, I l l i n o i s , 1964. Beckman, T.N8, "The Value-Added Concept as a Measure of Output," Advanced Management, A p r i l , 1957. Beer, S., "What Has Cybernetics to do With Operational Re- search," Operational Research Quarterly, Vol. 10, No. 1, March, 19"5~9~̂ Boulding, K.E., "General Systems Theory—The Skeleton of a Science," Management Science, Vol. 2, No. 3, A p r i l , 1956. •V-ChurchmSn, C.W., "Marketing Theory as Marketing Management," R. Cox, W. Alderson, and S.J. Shapiro (eds.). Theory i n Marketing, R.D. Irwin Inc., Homewood, I l l i n o i s , 1964. Cox, R. and Goodman, C.S., "Marketing Costs of House Building Materials," Journal of Marketing, July, 1956. Dent, J.K.j "Organizational Correlates of the Goals of Busi- ness Management," Issues i n Business and Society, William T. Greenwood (ed.), Houghton-Mifflin Co., Boston, Massa- chusetts, 1964. 155 Duncan, D.J., "Selecting a Channel of D i s t r i b u t i o n , " Mar- keting Channels f o r Manufactured Products, R.M. Clewett (ed.), R.D. Irwin Inc., Homewood, I l l i n o i s , 1964. Engle, N.H., "Measurement of Economic and Marketing E f f i - ciency," Journal of Marketing, A p r i l , 1941. Forrester, J.W., " I n d u s t r i a l Dynamics: A Major Breakthrough for Decision Makers," Harvard Business Review, Vol. 36, No. 4, July-August, 1958. Grether, E.T., "An Emerging Apologetic of Managerialism?: Theory In Marketing, 1965," Journal of Marketing Research, May, :.1965. Hollander, S.C., "Measuring the Cost and Value of Marketing," Marketing and the Behavioral Sciences, P. B l i s s (ed.), A l l y n and Bacon Inc., Boston, Massachusetts, 1963. Lazer, W., "The Role of Models i n Marketing," Journal of Marketing^ A p r i l , 1962. Lazer, W. and Kelley, E.J., "The Systems Approach to Market- ing," Managerial Marketing: Perspectives and Viewpoints, I. Lazer and E . J e Kelley (eds.), R.D. Irwin Ine*,, Home-wood, I l l i n o i s , 1962. , "Systems Perspective of Marketing A c t i v i t y , " Mana- g e r i a l Marketing: Perspectives and Viewpoints, revised e d i t i o n , R.D. Irwin Inc., Homewood, I l l i n o i s , 1962. McCammon, B.C.. and L i t t l e , R.W., "Marketing Channels: Ana- l y t i c a l Systems and Approaches," Science i n Marketing, G. Schwartz (ed.), J ;. Wiley and Sons Inc., New York, New York, 1965. McGarry, E.D., "Some Functions of Marketing Reconsidered," Theory i n Marketing, R. Cox and W. Alderson (eds.) R.D. Irwin Inc., Chicago, I l l i n o i s , 1950. Ridgeway, V.E., "Administration of Manufacturer-Dealer Sys- tems," Administrative Science Quarterly, March, 1957. Ryan, F.W., "Functional Elements of Market D i s t r i b u t i o n , " Harvard Business Review, July, 1935. Sessions, R.E., " E f f e c t i v e Use of Marketing Channels," Marketing Channels f o r Manufactured Products, R.M. Clewett (ed.), R.D. Irwin Inc., Homewood, I l l i n o i s , 1964. 156 Sevin, C.H., " A n a l y t i c a l Approach to Channel P o l i c i e s — Marketing Cost Analysis," Marketing Channels f o r Manu- factured Products, R.M. Clewett (ed.), R.D. Irwin Inc., Homewood, I l l i n o i s , 1964. Shaw, A.W., "Some Problems of Market D i s t r i b u t i o n , " Quarterly Journal of Economics, Vol. 26, August, 1912. Waugh, F.V. and Ogren, K.E., "An Interpretation of Changes i n A g r i c u l t u r a l Marketing Costs i X" American Economic  Review, May, 1961. UNPUBLISHED MATERIALS Moore, L., "The Systems Concept; A Key to Organizational Effectiveness," currently unpublished a r t i c l e , The University of B r i t i s h Columbia, A p r i l 8, 1966. Savitt, R.S., review of Breyer, R.F. , Quantitative Systemic Analysis and Control: Study No. 1, Channel and Channel Group Costing, College Offset Press, Philadelphia, Pennsylvania, 1949, unpublished paper, The University of C a l i f o r n i a , Berkeley, C a l i f o r n i a , May 9, 1963.

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