Organizational architecture

1
Organizational architecture
2
The Enterprise

• People create teams or a company because
• they can produce more as part of a team then they
  can individually
• they can generate a greater set of possibilities
• The enterprise is defined as a set of contracts
  between the resource owners, who voluntarily sign
  contracts with the team members, in order to
  achieve benefits for the firm and the individual
  persons
• In an economic sense, the enterprise includes
  non-income generating units, departments inside
  the corporation, and other organizations

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The enterprise as a set of contracts

• The enterprise is a legal concern that can enter
  into contracts with many agents and enforce
  realizations of these contracts in court
• Employee contracts employees, worker unions,
  freelance workers
• Supplier contracts inventory, materials, energy,
  water
• Client/customer contracts sales, warranties
• Financial contracts insurance, leasing, loans,
  stocks
• Some contracts are entered into in a written
  form, others are oral contracts based on agents'
  reputation

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The enterprise as a set of contracts
ENTERPRISE
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Shares and compensation of agents
Contractor Input Expectations
Stockholders Manager Employee Supplier Client/Customer Lender Government Auditor Own Capital Abilities Abilities Services, Goods Cash Cash Public Goods Services Dividends Compensation, Perks, Awards Compensation, Awards, Bonuses Cash Services, Goods Interest, Repayment of the Loan Taxes Fees
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Aims and functions of accounting

• Measures the input of each agent into resources
  of the enterprise
• Defines and divides compensation dedicated to
  agents based on signed contracts
• Informs particular agents about the degree to
  which other agents completed their contractual
  responsibilities and received compensation
• Helps in maintaining liquid market for
  contractual agreements and for the factors of
  production supplied by owners, so that a
  resignation or elimination of one agent would not
  endanger enterprise's existence
• Because contracts with various agents are
  periodically reviewed, a specific knowledge is
  gathered which aids contractual renegotiations
  and formulation of contracts

7
Sky Air

1. Is Samuel Kaplan an owner or a manager in Sky Air
   Enterprise? How can the decision-making process
   change, when the company is sold? What decision
   must be reached by Kaplan in the near future?
2. If the company is sold, will Kaplan's aims
   change?
3. Whose valuation is proper Kaplan's or the
   bank's? Why can the enterprise be worth less than
   Kaplan thinks?
4. What can Kaplan achieve by selling the company?
5. Let's assume that Kaplan (exclusive owner)
   considers a possibility of purchasing a new
   airplane used primarily for business, not for a
   commercial use. The cost of purchase is 3
   million. The benefits for the enterprise will
   amount to 1.5 million and personal benefits up
   to 1 million. Should Kaplan purchase the
   airplane?
6. What will his decision be, if he sells 50 of his
   stock to the bank?
7. Can something be done to increase the value of
   the enterprise from the bank's point of view?