The Nature of Conflict over Business Objectives Between Owners and Managers of an Organization
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The Nature of Conflict over Business Objectives Between Owners and Managers of an Organization This report aims to examine the sources, nature and effects of conflicting business objectives of the owners and managers of an organization. Relevant theories will be illustrated on the examples of Selfridges and New Look. These organizations have been chosen, as their recent buy-outs have been followed by the resignation of their chief executives, which points to the existence of conflict between the managers and the organizations' new owners. A business objective is a precise statement of the long-term direction of an organization. It sets out both, the desired result and the strategic measures to be used to achieve that result. To be effective, an objective should be specific, measurable, achievable, relevant and time-bound. Business objectives are set at both operational and functional level. In order to survive in the long term, any organization needs to make a profit. Usually substantial investment is needed at first, yet this will only be made, where a worthwhile return can be expected. It can therefore be argued that an organizations prime objective should be to maximize profits. This simplistic approach, however, ignores the fact that in order to sustain those profits in the long-run, a company needs to further invest.
A conflict can already be identified at this level, whilst assuming that the manager will in fact identify with the organization he represents and acting to achieve the best possible outcome for the organization in the long-term and the shareholder in the short-term. According to Simon, however, the reality often sees managers pursuing their individual goals instead. They seek to "maximize their own utility". This means that they are concerned about their remuneration, work situation, power and status, before considering organizational welfare. Simon suggests that a manager will seek to satisfice the owner of the organization, but do no more than that. He will aim to achieve a level of profits that the shareholder will be satisfied with and invest enough to create optimism about the company's future, but then pursue his own interests. Where trading results are promising and satisfactory levels are met, the management is unlikely to disturb investors by such behavior, as these are concerned with achieving a worthwhile financial return on their investment. It may prove problematic though, when sales or profits fall, be it due to strategic weaknesses of the company, a downturn in the market as a whole or even economic slowdown in general. Within a public limited company, another issue linked into this is that the directors of a company issue their own pay rises, which means that this is not necessarily linked to their actual performance.
In the case of Selfridges, the loss of managers' power to act in their own interest was made obvious by the appointment of a management team overseeing all of the new owners', Galen Weston's, businesses and the abandoning of large parts of the company's expansion plans. Both examples show that it is essential for a company to reach expected levels of profits for its owners. Investment, though necessary to sustain consistent profits in the long term are a risk in the short term and must be communicated well to the company's shareholders. A drop in sales will make investment less attractive, whereby it is not always relevant, how that fall is caused. It must be carefully assessed, which stakeholders interests to focus on. A failure to achieve a balance between investment and short-term profits may lead to a take over, which may mean the loss of power or even position for the managers. While the pursuit of individual goals is often the reality for managers, this can cause problems for the company, when trading becomes more difficult. The means of influence over management decisions for an owner of a public limited company are limited, however, where objectives are too wide apart, the effect of his disapproval will be wide reaching. 1 www.newlook.co.uk 2 the appointment, 14th Feb. 2004 ?? ?? ?? ?? 1
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