What is the role of the modern corporation and who should it serve?
Modern organizations emerged as a business entity with the socio-economic objective and goals to perform their operations in a social society effectively. Each organization has its own framework designed in consideration of its major goals which shapes its operative goals. These goals define the actual set of objective that an organization wants to achieve in considering its impact on official goals. Traditional organizations main objective was the corporate wealth maximization in order to ensure a higher return for the investors (Burke, 2007). Such corporations used to focus on achieving its objectives through any means without consideration of their decisions impact on civil society. Continuous development in organization structure and presentation of theories by scholars in perspective of organization functioning reformed the organizations official goals; and such organizations emerged with new structure emphasizing on benefiting its internal microenvironment and general environment that includes all stakeholders.
Although all modern corporations exist to make more profit and ultimately giving higher return to their investors; despite the fact it also now consider its role as an entity for the social groups it is serving. Conservative approach of the modern organizations makes the management more oriented towards profit maximization irrespective of any social concern. This type of organizations main objective is to cut down their cost to its extent so that it can increase its net profit margin. However, such cost cutting measures are seen on the compensation packages for the employees, relation with the supplier, output expenditure, and cost undertaken for production without valuing its impact on corporation’s respective general environment. In contrast to it, now the major concern of many modern organization is the maximization of it stakeholder’s value that form its specific environment. Such organization’s main objective to maximize profit is valued in reflection of advantage for the respective stakeholders.
Role of modern organization is more formalized to undermine its decision impact on stakeholders which is depicted in overall purpose of the organization represented in the memorandum of the organization (Burke, 2007). For a manufacturing firm it has to consider the output and material excreted as waste directly in the environment which may cause serious physical problems in people; so that it can minimize the extent of loss. Collaborative effort of the modern organizations for the benefit of community that is deprived of the basic needs shows the social concern objective of contemporary organizations. It not only underlines the profit maximization objective but also views its decision impact on its stakeholders that include suppliers, employees, social community, competitors, investors and many indirect stakeholders. Organizations are now focusing on taking a combined approach of open system and social functioning perspective in order to build its equity and transform its image in local community that ultimately affects the productivity of organization. When organization gives advantage and compensation benefits to its employees, higher level of productivity is observed as employees also try to show loyalty towards organization which subsequently helps the organization to gain higher productivity level from employees. Organizations need to be clear and specific in defining its official goals and operative goals with respect to resources available to it to perform its business activity. Therefore it should state its overall purpose in its memorandum so that management decisions should be made in light of the organization goals.
Modern organizations also consider the societal benefit that it can convey to general public in order to influence the perception of local community regarding the company reputation and goals. External environment scanning helps the organization to analyze the opportunities and challenges that it may encounter which may affect its general operation and ultimately will create a pressure on the sustainability of the organization. Stakeholders relationship management advantage the organization to convey the outcome of its goals towards its respective stakeholders; which in turn forward the information about the changing environmental needs towards the organization. Therefore modern organizations focus on its stakeholders to effectively set and achieve its goals while investors return is also maximized due to considerable social responsiveness of the organization towards local community. Government also offers tax advantage to modern companies active in supporting the social community needs such as Avon cosmetics launched a campaign to promote awareness about cancer in African countries; Procter & Gamble supporting the education system by running a school for children who are unable to get access to education due to lack of proper funds in many under-developed Asian countries. The main point of convergence is the affect of such activities on the organizations profitability and social concern advantage in the form of increased brand equity. Modern organizations focus on the total quality management process and hence continuously update its process and relationship with the stakeholders that not only help shape the organizations but also give insight about the effective strategies that should be used by an organization if it is heading towards globalization.
Many modern organizations understand the importance of relationship with stakeholders and its decision impact on the social society. Organizations can achieve it only with the involvement of employees in the goal setting and decision making that leads towards effective strategy implementation; whereas profitability index of corporation inclines due to cost effective measures taken by the management as employees try to focus on giving better productivity to the organization when they are rewarded equally for their services, and hence as they are part of decision making, work with more diligence as they feel sense of responsibility due to involvement in organization goal setting. General environment of an organization includes the social, cultural, economical and technological forces that comprises the overall environment that organization need to serve to achieve its ultimate goal of profit maximization; whereas specific environment has a direct impact on organization goal setting, decision making and ability to achieve goals (Burke, 2007). Therefore the approach to serve stakeholders is dependant on organizations relationship with the suppliers and employees as this keeps the organization value chain process strengthened by less or no distracting effect in the availability of quality input and transformation into output; hence suppliers and employees keep the operative functioning of an organization in progress. Therefore modern organizations role has been characterized as to benefit all stakeholders which exist in external and internal environment and helps to support the organization main purpose of profit maximization for its investors while screening concern for the social responsibility of an organization in contemporary world.
Why is the assumption of profit maximization still a powerful driving force for many organizations?
Organizations main purpose of existence is to earn profit and maximize its value over a period of time as it keeps performing its operational and management activities. Organizations each year set a profit level to achieve and design strategies in consideration of it for the effective goal accomplishment. Goal setting is characterized with the resources available to organizations in the form of assets, inventory, cash, human resources and financial resources (Burke, 2007). These resources are cumulatively involved in organization activity that sets a performance level standard and performance evaluation in terms of its benefit to organizations. In small organizations it is possible to assess the extent of services and performance whereas large organizations require extensive effort to define the task and designing of job and hence encounters an increase in standard cost that have a negative effect on the profitability level of an organization. Such large firms may be efficient in one department and may require reforming of strategies for other department efficient functioning. This all cost need to be accounted from the revenue generated by organizations for it which it encounter a huge level cost and hence followed to determination of net overall profit of organization instead of each department profitability.
Management can set specific measureable goals for each of its respective department having direct influence on the profitability of organization. These goals have to smart so that it can evaluate the functioning and performance of organization in financial quantitative terms and specific plans can be devised to reform the organizations structure (employee remuneration package plans, input quantity evaluation, wastage determination, steps taken to increase sales etc.) and operational processes. Managers can assess the extent to which they are required to take decision in consideration of availability of resources and outcome of their decisions on profitability level of organization. To give a clear point of view about the management objective, managers are provided with a concept of profit maximization that needs to be achieved through his department. For example sales team is provided with a specific target in quantitative value terms that it has to achieve which shows the performance of every sales depending upon the sales target he accomplished. Core management decisions for specific sales level are determined in accordance with the output level produced in assessment of market demand and cost arise as per production unit.
Economic profit is achieved due to adhesive impact of managerial decisions taken by strategic apex of organization and managers role to achieve the extent of possibilities for profit maximization. Shareholders or investors can easily assess the performance of organization in terms of profit it generates, showing the potential in an organization to grow with limited resources (Kotter, 1996). This shows the manager’s performance (for each respective department of an organization) as organization incurs high cost and substitute negative effect is observed in the net profitability of an organization. Specific quantitative goals to be achieved by each department influences the performance level of employees and show the ability of manager to focus on core decision that head the optimum output at minimum cost. Hence, productivity of an organization can easily be observed through the profit index inclination which increases the equity value for its investors or respective shareholders. Considerable importance is given by organization to achieve its goals at minimum cost by efficient use of resources which shows the latent ability of organization for growth in future through the use of available resources.
Another perspective that profit maximization objective creates in an organization as a driving force is the planning decision whether to undergo any activity or should it be outsource to cut down cost as happens in manufacturing concern firms; allocation of resources for each activity and output generation by use of the resources allocated that shows the efficiency or inefficiency of an organizations; and changes that are formed in an organization as a result of its past performance. These changes can either be seen as organization expansion for higher level of growth or contraction due to losses incurred (if any). Therefore we can easily assess the overall performance of an organization if profit maximization objective is set as a major operative goal to be achieved by the proper allocation of resources and appropriate responsiveness by respective managers to accomplish tasks efficiently. In case, if profit objective set in quantitative term is not achieved then management can review its standards or may force more formalized structure to cut down cost incurred due to wastage or by inefficient performance of employees; hence profit maximization act as a strong responsive driver for an organization to set its goals and performance while maximizing return on its investment for shareholders.
Hypercompetition is simply an excuse for lazy managers who are unwilling to study the environment
Organizations competition has been growing rapidly as new entrants in industry are utilizing latest technology and therefore setting competitive goals through their sustainable competitive advantages in offerings. Hypercompetition is therefore described as continuous changes in competitive strategies to get sustainable competitive advantage over competitors by the use of latest technologies and unique selling proposition of an organization to eradicate the competition from the industry (Thomas & D’ Aveni, 2004). As a result of competitive strategy transformation, competitors alter their unique advantage and use most recent technology in their input process to offer customers a unique and differentiated product compare to other industry players. This signifies the continuous changes that arise in the industry as a result intensive competition among players of same industry. Organizations utilize a unique strategy as a response to its competitor’s strategy; as a result competitor also reform its strategy and advantage in response to the organization strategy for objective accomplishment through sustainable competitive advantage. Hence we can conclude that since the competition is forcing continuous and sometimes rapid changes in the industry by efficient resources and latest technology utilization, therefore hypercompetition is pervasive and continuously developing.
An organization is subject to major market changes that is intensifying the toughness of hypercompetition and includes globalization, market development, product development, diversification, substitute products arrival in market, technological change, customer reformation about market knowledge, and government regulations (Thomas & D’ Aveni, 2004). These things entirety help to shape the competitive strategy of an organization and force to design a sustainable competitive advantage to eradicate the role of present rivals in an industry. Organization development is based on the hypercompetition level that is present as it creates a pressure on business entities encouraging them to utilize latest resource in order to lead their position within the industry. Competitors are more influence with a particular strategy and therefore focus on offering a better, new and unique product/service to the target customers. Organizations set a specific standard of hypercompetition which ultimately defines the degree of competition and need for competitive market offering compare to other market players that will give company a sustainable competitive advantage over other competitors. These competitive advantages for a company may range in its product/services uniqueness, business & operational process development, employee empowerment, technological advancement use by a company in response to market need due to hypercompetition in market.
For an organization, to be able to meet or exceed hypercompetition, it should possess abilities in its human and financial resources. Managers, however in any case stand responsible to the market actions and changes that are brought as reaction to their decisions, have to be able to look for more innovative and unique ways that can help organization to lead over their rivals. Since the advantage in hypercompetition is temporarily sustainable due to continuous improvement and rapid changes in environment; therefore it requires more extensive effort to be put in by the organization to devise a new strategy on the basis of new competitive advantage signifying as per the need of market and competition. Organization should concentrate on its human resource as it comprises of core component to develop strategies and utilize their energy to support the goals of an organization in hyper concentrated competition within the industry through developing new offerings and improvement in business processes. Managers, sometimes blame the failure of organization to intense market competition (hypercompetition) irrespective as part of their role in organization performance (Senge et al., 2008). These types of cognitive responses show the abilities of managers performing their weak role in competitive environment towards rapid competition changes.
Hypercompetition exist within an industry as it grows and becomes saturated; hence requiring more effort by each player to over-ride the strategies of their rival competitors for organization success. Therefore, inefficient workforce (major concern on managers) transfers the characteristics of their inability to compete towards hypercompetition. A single strategy can not be used by an organization to succeed in hypercompetitive markets as competitors continuously focus on changing their sustainable competitive advantage as part of their competitor’s strategy impact on them. Therefore, organizations should adopt total quality management strategy to continuously develop their organization in terms of employees and product/service offering that will benefit the organization by the effective utilization of employees’ abilities that will help to set new standards of competition and devise responsive competitive strategy plans over a period of time in hypercompetitive market.
What is the meaning of “Hard” & “Soft” Innovation? Give examples?
Innovation occurs over a period of time based on the input effort put in by the organization in considering its importance in hypercompetitive environment. Organizations focus on innovation to offer a unique product/service in competitive market so that it can achieve sustainable competitive advantage for a specific period of time until no other better benefit to customers is offered by competitors (Senge et al., 2008). Innovation is characterized in two types as hard and soft innovation for the outcome achieved by each based on input given to each by the organization.
Soft innovation is most easy to observe and results as per the unique idea generation by a person which may be shaped in a form through research and effort to present it as a hard innovation that is difficult for others to copy easily. Soft innovation may be diffused in terms of offering for customers but focus on concrete idea that defines the strategic goal and expected outcome. For example an employee of manufacturing firm such as Unilever generates an idea to develop a shampoo for the skin of men’s hair (considering that no other competitor has think of that idea). In anti-bacterial soap manufacturing firm, an employee gives idea to visualize the war between germs and germicide product of company on television to attract consumers towards the use of product. Such types of soft innovative ideas are ambiguous in terms of approach to be used but clearly define the need for advancement and expected outcome to achieve in competitive market environment by the company.
Hard innovation is illustrated in terms of its concreteness for the decision, approach or product/service depending on the organization type and its offering. Organizations analyze the need for new and innovative ideas and then invest considerable amount of energy and money to transform the soft innovative idea into a hard innovative product that differentiates the product from other market product for its unique advantage. Such as hydrogen car prototype developed by Toyota is a hard innovative product as Toyota has extensively invested a high amount on its research team to develop a hydrogen fuel based car in considering the potential need in market in near future. Idea generation is characterized as soft innovation and transformation of that idea into a formalized and standard offering (product/service) is hard innovation. Soft innovation leads to hard innovation if organization put money for the development of idea into a product. The ultimate product produce possess high risk at initial launch in market as it may be accepted by the consumers or it may get reject if it fails to satisfy the need for which it was constructed. Hard innovation is therefore represented as effort put in by Research and Development department of an organization through proper screening channel of idea into a final product. Toyota hydrogen car possess higher risk for its functionality and usage and if accepted by customers will give a high amount of return to the company considering the depletion of crude oil need and need for vehicles run on alternate fuel mechanism.
Organizations structure and decision making has been reformed as the market competition has build an extensive pressure on the contemporary organization to determine its goals with its impact on respective stakeholders. Overall purpose of an organization is to maximize profit that sets a directive for managers to efficiently allocate and utilize resource. This concept leads to continuous improvement and innovation in offerings to attain sustainable competitive advantage.
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Kotter, John. P. (1996). Leading change. Edition: 1. Published by Harvard Business Press Sage Publications
Senge, Peter. M. Laur, Joe. Schley, Sara. (2008). The Necessary Revolution: How Individuals and Organizations Are Working Together to Create a Sustainable World. Edition: 1. Published by Doubleday
Thomas L.G. & D’ Aveni, Richard. (2004). The Rise of Hypercompetition in the US Manufacturing Sector. Web.