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

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

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.

Peter Collins

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 < 1, then company is in danger of take-over Ability to sustain growth without risk of take-over depends on the quality of management

Peter Collins

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

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

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

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

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

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