GOALS OF FIRMS

1
GOALS OF FIRMS

• Profit maximisation - short and long term
• Stable dividend payouts
• Growth in capital value
• Sales revenue maximisation
• Maximisation of capital assets
• Maximisation of market share
• Ethical goals
• Price stability
• Multiple goals
• Satisficing objectives

2
THEORIES OF THE FIRM

• CLASSICAL - Simple maximisation approach
  (profits)
• MANAGERIAL - Constrained maximisation approach
• - Baumol
• - Marris
• - Williamson    
• AGENCY - Firm represents contracts as between
  principal and agents
•   BEHAVIOURAL - Satisfying approach  

3
BAUMOL MODEL

• Assumption to maximise sales subject to a
  profits constraint
• Leads to a higher level of output than in the
  simple maximisation approach
• Can approximate to profit maximisation approach
  in certain circumstances
• if profits constraint is very high in recession
  where marginal cost is very low
• Different reactions to cost increases, taxation
  etc.

4

• Peter Collins

5
MARRIS MODEL

• Assumption to maximise growth in capital assets
  subject to a security constraint  
• Security constraint represents the fear of
  possible take-over and is measured by the
  valuation ratio  
• Valuation ratio is measured by the ratio of the
  stock market valuation of company assets relative
  to book asset value
• If ratio lt 1, then company is in danger of
  take-over
• Ability to sustain growth without risk of
  take-over depends on the quality of management

6

• Peter Collins

7
WILLIAMSON MODEL

• Assumption to maximise managerial utility
  function subject to a profits constraint  
• Managerial Goals
• Salary
• Security
• Dominance
• Professional Excellence  
• Expense Preferences
• Staff
• Emoluments
• Discretionary Profit    
• U-form and M-form of organisation

8
OTHER GROWTH MODELS

• Galbraith
•       - technostructure  
• Downie
•    - technology restraint
•        - transfer and innovation mechanisms  
• Penrose
•       - managerial restraint
•       - resources and services
•         - role of diversification
•       - internal and external obstacles
•       - internal and external opportunities  

9
BEHAVIOURAL THEORY OF THE FIRM

• Based on coalition of different interest groups
   
• Stakeholders
• Shareholders
• Management
• Workers
• Bankers
• Customers
• State
• Suppliers
• Satisficing Behaviour
• - examples of compromise  

10
BEHAVIOURAL THEORY (Con)

• Organisation seen as coalition of differing
  interest groups
• MANAGERS                                          
        SUPPLIERS
• SHAREHOLDERS                                     
  CUSTOMERS
• WORKERS                                           
         GOVERNMENT
• SUB GOALS PRODUCTION                         
                MARKET SHARE
• INVENTORY                                       
      PROFIT
• SALES

11
MAIN CONCEPTS

• SIDE PAYMENTS 
•  
• SEQUENTIAL V SIMULTANEOUS ACTIVITY
• ORGANISATIONAL SLACK
• ASPIRATIONS AND NON OPERATIONAL GOALS
• SATISFICING BEHAVIOUR
• SEARCH ACTIVITY
• STANDARD OPERATING PROCEDURES

12
BEHAVIOURAL THEORY (con)

• Summary
• QUASI RESOLUTION OF CONFLICT 
• UNCERTAINTY AVOIDANCE
• PROBLEMISTIC SEARCH
• ORGANISATIONAL LEARNING  
• Problems
• Too short term
• Views firms too passively
• Lack predictive value