• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Behavioural Theories of the firm

Extracts from this document...

Introduction

Behavioural Theories of the firm Harmeet Singh, 0390309, ME/January 2005/1 1.) Introduction:- The purpose of this report is to evaluate and analyze the salient points of behavioural theories of the firm and to compare and contrast the behavioural models with the management models of Baumol, Marris and Williamson. The traditional neo classical theory of the firm was seriously challenged by alternatives such as managerial and behavioural theories. 2.) Salient features in the behavioural theories of the firm:- Where the managerial theories go well beyond the simple notion of traditional theories of profit maximization, they however still cling to the idea that management endeavours to maximize something whether it is sales revenue, utility or firm's growth, the behavioural approach adopted by so called behaviouralists rejects the whole notion of maximization and favours a less strong goal of 'satisficing'. Behavioural theories emphasize the importance of attempting to understand the various factors that affect human behaviour in organizations. E.g. the group of studies conducted at the Hawthorne plant of the western electric company during the late 1920's and early 1930's where researchers monitored the productivity of six women who assembled electrical relays for several years under different working conditions. Cyert and March argued that the firm cannot be regarded as a monolith, because different individuals and groups within it have their own aspirations and conflicting interests, and that firm behaviour is the weighted outcome of these conflicts. ...read more.

Middle

The managerial models still cling to one or two objectives of the firm but the behavioural model believes that the firm has multiple objectives. The behavioural theories emphasize the importance of attempting to understand the various factors that affect the human behaviour, the managerial theories explain the factors in which the shareholders and management behave and the factors due to which the management and owners interest differs. The managers have discretion to use firm's resources in their own interests. Where the shareholders or owners are interested in maximizing the profit, the managers are more interested in maximising their utility which differs on behaviour of manager. Baumol's model of sales revenue maximization suggested that managers' interests are best served by maximising sales after achieving a minimum level of profit which satisfies shareholders. Hence the model has the criteria of satisfying level of profit for shareholders which is similar to behavioural model approach of satisfaction. Managers may wish to do this as it brings with it the benefits of growth, market share and status. Various studies have shown that a manager's income, prestige and aspirations are more closely linked to sales revenue than profit. In Cyert and March (1963), firms are adaptive organisms that cope with problems as they arise instead of maximizing any objective. The main criticism for Baumol's theory was that they believe in conventional cost and revenue functions and they ignore the rival behaviour in making day to day decisions. ...read more.

Conclusion

They bid a stock price that is less than the book value. The capital invested in the firm is not as productive as it ought to be, or could be if invested elsewhere. This is a takeover situation. The firm can be bought at a price less than the worth of the assets it represents. The firm will be bought because, with a change in management, capital can be made to be productive. Profits can be increased. Stock price can be improved. The directors have to secure their job by keeping enough money to grow and at the same time keeping enough money to give dividend to keep shareholders happy. 4.) Conclusion:- Where the traditional neo classical theory of the firm was seriously challenged by alternatives such as managerial and behavioural theories, the managerial theories go well beyond the simple notion of traditional theories of profit maximization but they however still cling to the idea that management endeavours to maximize something whether it is sales revenue, utility or firm's growth. The behavioural approach adopted by so called behaviouralists rejects the whole notion of maximization and favours a less strong goal of satisficing. The behavioural approach is a useful complement to the traditional & managerial approaches but not a substitute for that. The behavioural theories are more generic and realistic than the managerial theories. Each managerial theory tends to maximize one or two goals of the managers whereas the behavioural theories tend to satisfy multiple goals and to prevent conflicts and problems between different coalition groups. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Structures, Objectives & External Influences section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Structures, Objectives & External Influences essays

  1. Explain the purpose of keeping accurate financial records.

    of a professional registrar) at which it is kept. * A summary of authorised and issued share capital which consideration received for issued shares and other details. * A list of members (made up to the return date) showing individual shareholdings and changed which occurred during the year.

  2. Profit maximisation

    Existing firms unable to stop new firms setting up in business. Setting up a business takes time, however. Freedom of entry therefore applies in long run. 4. The goods being sold must be homogenous in nature. The short and the long run In the short run the number of firms is fixed.

  1. Business report on J Sainsbury's.

    to expansion o Little capital required for expansion o Original idea o High status (having distinctive name for the business) o Feel honoured that people want to use their name The advantages for a franchisee: o Gets a well-known name and logo o Gains from national advertising o Gets an

  2. Does the existence of the principal-agent relationship within the firm contradict the assumption of ...

    The danger lays in the situation where the agent may not act in the principal's best interest and may be able to get away with doing so because of the principals imperfect knowledge and inability to monitor effectively the day-to-day running of the firm.

  1. Explain why managerial theories of the firm have developed, and how the predictions from ...

    Loss of control by the owner as an individual was a result of this growth, as was the need for more finance, often provided by the issue of shares or the floating of the company on the stock market. The establishment of shared ownership of an organisation is usually followed

  2. Investigating Business. Tesco PLC. I will be describing the aims and objectives of ...

    for Tesco?s as it helps make Tesco?s products and services more available to Customers and to people that are not more accessible to Tesco?s because of where they live, or their region. The Price part of the marketing mix is one of the most influential factors for Tesco?s in achieving

  1. Applied Business. Investigating a business Preston Manor High School

    will also make it harder for the school to reach its aim. The positive point about the government spending money on NHS is that the school will save up money on health & safety resources because the NHS will provide them with it.

  2. Identify all the considerations that need to be taken into account when planning a ...

    They are efficient and self-disciplined, and can always be relied on to deliver on time. They are motivated by their loyalty to the team or company, which means that they will often take on jobs everyone else, avoids or dislikes.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work