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In Business, what is a Closed System?

By Katriena Knights
Updated May 16, 2024
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In business terms, a system is a collection of elements within the business that work together to perform a specific function. Elements of a system include employees, software, outside vendors, individual business departments and a myriad of other elements of the business that work in tandem. A closed system is defined as a system that has no interaction with any elements outside the system itself. For most businesses, a completely isolated system is rarely practical, but in some cases, a closed system does make sense in the context of the business and the system's function within that business. In other cases, the term "closed system" is used to refer to a business system that is not completely closed but that has very little interaction with outside elements.

There are several reasons why closed systems exist in businesses. For example, if a particular system is highly proprietary, containing sensitive information about the company itself or its employees, it might be established as a closed system in order to prevent that information from being corrupted or stolen through interaction with outside systems. Another similar system might be set up to protect it from viruses or electronic intrusion. Often systems are set up to disallow the addition of unauthorized software, making them partially closed in order to protect the system's data.

Another reason why a business might choose to create a closed system is for long-term analysis reasons. One department within the company might wish to analyze specific data, separating that data from any influence of interaction with the outside environment. In this case, such a system would be the best way to provide information for this kind of analysis. A partially closed system also can provide information about how the company responds to very specific environmental changes. This kind of data can be used to determine how the company should respond to these changes.

Aside from very specific uses, a closed system approach generally is much less popular and much less useful to a business than the open-system approach. An open system allows a company to interact with other companies, with customers and with suppliers. The system might have too many limitations for a large company to perform all of its necessary functions and is also subject to entropy as data within the system becomes irrelevant over time. Generally, businesses operate using a variety of systems with various degrees of open and closed approaches, allowing the various systems to provide targeted data and a variety of functionality.

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Discussion Comments

By BoniJ — On Sep 16, 2011

I would think that an open rather than a closed system would be the most desirable way to run a business. But there are some situations where a client demands that their data be closed to everyone, but the business. Or the company, itself needs high security within their organization.

Sometimes a closed system is necessary, but I think that some parts of the company need to have interaction with the outside.

Some of the most closed systems must be some organizations in the military and the government. To maintain national security, these systems have to be extremely closed, not letting out any information about their activities to anyone.

By nony — On Sep 15, 2011

@miriam98 - I don’t know; the difference between an open system and closed system can be a little open to interpretation, in my opinion, and I think the article suggests that possibility as well.

Is it the level of access that determines whether a system is open or closed, or is it the tendency of any of the “stuff” within the system to change – or is it both?

I believe the article describes both scenarios. Ultimately, I see a closed system as simply one that is very restrictive, however you choose to view that.

By miriam98 — On Sep 15, 2011

@allenJo - I think the reality is that in most companies you have part open, part closed systems.

Where I work we are able to work from home using a virtual private network. That gives us access to the internal network. That network is completely disassociated from the website or any other part our corporate presence that customers could have access to.

In other words, only employees can access it, not anyone else. Is it an open or closed system? I think it’s a little bit of both; the fact that we can access it from the outside makes it open. The fact that only we can access it makes it closed.

By allenJo — On Sep 15, 2011

@David09 - I work for a software company that caters to utilities. We often work with customer data and I can tell you that for one customer in particular, we have a very closed system.

By that I mean the data is completely separated from the rest of the network, in another room, and very few people have the clearance to access it. We have to separate the data in this manner in order to honor a security contract we have with the company.

If that database makes it out to any other part of the network or someone else who doesn’t have clearance looks at it, heads will roll. So I can relate to the idea of a closed system.

By David09 — On Sep 14, 2011

It’s interesting that businesses use the term open and closed system and entropy. Entropy is a concept I vaguely recall from physics as being the tendency of a system to go from order to disorder.

I realize that some people dispute that simple definition nowadays, but it seems to be the definition that the article is using. It refers to data becoming irrelevant over time, which would be disorder I suppose.

As someone who has worked in data management, I can tell you that it’s very easy for data to become irrelevant over time. The very nature of data is that it’s meant to be dynamic. I’ve done many projects for people where I had to step in and take over databases that had a lot of old data that had been corrupted over time.

Without an open system, which allows other people to step in and update the data, the data becomes worthless. So I would agree; in the end you have disorder.

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