In this assignment from peer reviewed, academic literature, we will look at the different perspectives of Agency Theory and Human Agency and the results in their different approaches to strategising.
A strategy is a plan or set of guidelines that integrates an organisations goals, policies and actions into a firm whole. A well formulated strategy helps an organisation to channel their resources into formula which is based on the Companies strengths and weaknesses. It takes into consideration any anticipated changes in the future, and possible competition from other organisations. Without a well formed strategy an organisation can lose its way and potentially flounder and fail to thrive and move forward.
Agency Theory is frequently used widely across academic disciplines, and has been used by scholars in accounting according to (Demski and Feltham 1978). Agency Theory concentrates on the relationship between people where delegating authority is the norm. Where the principle gives the authority to make decisions to an Agent. This relationship is between two parties and these could be owners or managers and outside agencies. Internal Agency relationships, between a manager and another employee for example, are designed to help the agents to feel more involved if within the organisation and to feel like part of a team, and ultimately an important part of the organisation. This relationship can be very effective. This in principle is good, however, it does not come as easily as it can appear, it comes with costs. These costs are accumulated by the involving of others, both in time and money, include, monitoring the progress, and enforcing the decisions. These costs are always affected and will vary by the differing attitudes of all people involved and the accessibility and reliability of the information required. For example, the principle will always have access to much more information and this includes financial, statistical and personnel. They will have access to the more important information and more private information which will not normally be accessible to the agent on a daily basis. The agent, on the other hand will always be restricted and limited as to the information they will be given and have access to. This will lead to a potential battle of power, and barriers will be created and conflicts can arise between the principle and the agent if the agent is not given proper access to the information required, not offered adequate incentive for the work demanded of them, or is held back or restrained in any way. This is called an 'agency problem'.
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Human Agency goes back a long way over past decades, but today's interpretation, which is mostly due to the 'enlightenment' philosophers such as Locke and Hume says. "the faculty which God has given man to supply the want of clear and certain knowledge in cases where it cannot be had, is judgement....The mind sometimes exercises this judgement out of necessity, where demonstrative proofs and certain knowledge are not to be had, and sometimes out of laziness, un skillfullness, or haste, even when we demonstrate proofs are to be had (Locke 1928-298)
Human Agency is the idea that we can all make a difference to the world if we choose to, that nothing is set in stone and nothing is pre-decided. That in fact, we have choices in what we do and how we do it. But with any choices we make in life or in business there comes responsibility, and that responsibility is to those whom it may affect. It could be said that Human Agency is somewhere between free will and determinism. Ultimately Human Agency is cause and effect. To be an Agent in this context is to stand between cause and effect. To be like a referee, and to objectively observe and discuss. An Agent must be able to make an impact that is not explainable in objective or external causes.
There are two sides to Human Agency, and they may seem to be mutually exclusive but only to those who's philosophical and methodological assumptions allow them to ignore Human Agency. The first side of Human Agency is that there is not a relationship, it does not exist. To assume a realistic stance would be to assume there is a variance in what the philosophers call 'correspondence' theory, which is a test to objectively test the validity of a reality. This knowledge is reality and is very separate of our knowledge, because of this we are limited to compiling information about what we assume to exist, and processing it objectively and to the best of our ability given the reality we believe to exist. Normally what is concluded is objective in as much as it is independent of them, and the pitfalls come from incomplete or inadequate research or the incorrect processing information.
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The second side of Human Agency is the assumption that it is not possible to ever know the truth of reality. Those pushing to find the truth will only distract from being effective in the world as we find it. Most people will behave according to how they perceive the world to be
and their surroundings, or what they want to perceive to be reality, and this implies that there is a close relationship between who we are and the strategies adopted, and in fact there may not be such a big variance. In an organisation its strategy may be no more than its identity, and its analysis is dependant of the knower, this seems very complicated particularly as people are trained for objectivity.
This first side is associated with positivism and dominates journals and research. This method has been successful in natural sciences, however, it has not been beneficial in the field of strategy, particularly if Human agency is the axiom of the theory.
Making sense is the crux of Human Agency, and it moves away from naivety and gravitates towards perception, senses and what senses tell us. So what is perceived may be dependant on the actual reality that an organisation is trying to understand, and there is much perceptual psychology and philosophising attached to the 'may'. From a managerial view point they only need to admit creating the perception, for this is the hand of the strategist.
One theory of leadership is that who ever comes up with the perceptual framework and communicates it to the organisation becomes the organisation's sense of itself.
Some of those interested in considering Human Agency directly frame it on three ways, andd these three ways are, personal, proxy and collective (Bandura 2000). The first, personal, is the individual acting in their interest only and wanting to improving their image, stance or status, the second, proxy, is someone acting in the interests of another, and this is a very humanitarian approach, for example the principle-agency theory ( Pratt and Zeckhauser, 1991), and thirdly, collective, is the agency being generated at the collective level. These three mediations incorporated can build non-positive sense making theories of strategy, but it is very difficult to understand them if there is no independent knowledge or explanation of which mediation is being used, and this is to cause misunderstanding as to what is mean by Agency.
Agency Theory takes the approach that there is a relationship between the principles and the agents as previously stated. These relationships may take many forms, they may be that of a manager and employees, they may be that of stakeholders, or owners and managers. It also could be the position of outside agencies or consultants. Within the manager-employee
relationship responsibilities and authority will be delegated to the employee, and in the case
of the stakeholder/owner-manager relationship the responsibilities and authority will be
delegated to the manager. It is normal that the owners will always want the best return, the highest turnover, or the highest stock valuation, but they will always be limited by the information they are given.
Managers can be recruited to act as 'Agents' for the stakeholders/owners and in theory they are employed, at a cost, to act in the best interest of those who have employed them. Many organisations employ either, outside agencies or senior managers to help run their organisation and to act in their best interests and in particular, with reference to strategic planning and forward thinking. This, in theory, can be the best way forward for many Companies who think that by employing those who are more experienced is the most practical thing to do regardless of the cost involved. In cases of larger companies outside agencies are usually the best option for an organisation as they believe these consultants or outside agencies will be much better versed in corporate strategy and have much more experience. Although this option can be costly as the appropriate fees and incentives must be offered to encourage and maintain the Agents interest, and to secure the desire for the Agent to act in the best interest of the organisation, it can be very effective as they have the ability to plan and observe objectively and it will be what they specialise in.
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In the case of 'in house' managers being recruited to delegate to, and take on the duties and responsibilities pass authorities to, it can be beneficial from some points of view. In theory they have access to the day to day running of the company, can have a more hands on approach, and therefore should have a clearer more realistic overview of what is required in order comply with the owners or CEO's (Chief Executive Office) expectations. In many Peer Reviews and literature it is clearly shown that although these managers should be acting in the best interest of the company there can be difficulties and potential conflicts as frequently managers will act in their own interests before the interests of those who have employed them. This has been shown in particular to the diversification of strategic decision making. For example, there would be a conflict of interests if by selling a Company the stockholding was maximised, but the downside of this would be a major loss of jobs from the Companys that were sold off. This will cause manager/stockholder conflicts, although it is meant to be of benefit by diversifying. There should be a sharing of core competencies but managers find this difficult as they are suspicious that, what they perceive to be, their valued capabilities will be diluted and ultimately their position in the Company compromised diminished or redundant. If a shared infrastructure is sought then it is indicated that fewer managers will
be required, therefore job losses and discontentment. If several companies were to merge and in order to balance the financial and managerial resources they were combined and housed under one roof this would negate the need for as many managers as it would be more financially beneficial to be controlled by one management group, this also would result in job losses at all levels and, once again discontentment and mistrust would be the result. This also causes more conflicts within the manager's role in which they would find themselves struggling with more responsibility and a bigger work load and more difficult time constraints. Although these agents would be employed to act in the organisations best interest, it is possible that, in their own self interest, they could accelerate sales growth by various means and make other strategic choices that ultimately benefit only themselves by way of bonuses, promotions and increased payments but are ultimately detrimental to the stakeholders or owners as these increases in sales are only a temporary thing and do not show the accurate value of the business or shares. This can turn strategic decision making very political, it could ultimately become a power struggle and in turn this could influence strategic choice which would effect the future of the organisation in many ways. In most organisations the Chief Executive Officer is the main source of power and authority, and even in smaller companies if the Chief Executive Officer makes a decision it is normally favoured across the board as they are seen to be the more powerful and more knowing. The organisation can also act as an Agent and form other relationships along the value chain and the delegation of authority can be passed on to key suppliers and customers. If there is joint venture with a competitor then the organisations co owners can be the principle to the manager, or an agent to a jointly owned company. If it were said that Agency theory offers powerful insight into strategy and others areas of an organisation, be aware that it has its limits. There are critics that argue that although you can maximise the value, don't forget that human nature is singularly self interested.
Most owners of a Company would much prefer to manage and oversee their own company and to be accessible and to have access to all day to day activities and also to be able to reap the benefits of the hard work that has been poured into the organisation to the maximum, however, as companies have grown beyond the means of a single owner, and the financial and managerial obligations have continued to increase, ownership of larger companies has spread to many owner or stakeholders who are too far removed from the day to day management and planning of the organisation and are not as aware and not as involved as they would like to be in the general running of the company, and have become so far removed from this it becomes difficult for them to able to make clear and effective strategies for the Company, and this is where Agents have come into the relationship. They can be beneficial in many ways, and providing all the correct incentives, information and the accuracy of the information is provided, a solid and productive relationship can exist.
Human agency can be seen as independent agents responsible for their own actions, and self influencing. Peoples self beliefs, perceptions and positive thinking affect the way in which they perform. Having made these decisions or choices it is felt that they should be imposed on others, and can be very convincing in doing so. A manager of an organisation may perceive the future of the company in terms of their own personal wishes or desires and make the strategy for the future of the company with this clearly in mind. The facts of the strategy and historical information may not be the centre point of the decision making. It will be more of a personal decision, and a decision made to the individuals standards and morals rather based on reality.
Recent studies have emphasised Human Agency more than technology and structure. Human Agency is to behave with intention, and will influence the future by predetermined actions and plans. These are self efficacy beliefs that are human motivation, well-being and accomplishment. Whatever factors may guide and motivate the managers that follow this theory they are firm in their core belief that their control is internal and not external. They will continue to manage in this style because it is believed that the actions they perform will always produce the outcomes they desire, and this will represent a future course of action. This style of manager will always persevere regardless of obstacles and difficulties placed in the way as it is believed that anything can be overcome with sheer perseverance. The progress of the organisation will be monitored by flow charts and reviews rather than statistical performance. They will function using forethought where in they make plans and set goals based on an anticipated outcome. When self reacting they will change their course of management and planning according to reactions and thus taking corrective action rather than preventative. This type of manager will behave intentionally influencing their own functions and actions environment, life circumstances, and destiny. They are self regulating, they are proactive and self reflecting instead of reacting and strategising according to factual information presented before them. Self reflectiveness is when the manager has the ability to look back at the effects of his management and adjust the course of action accordingly. Human Agency used in strategy shows that there is more likely hood of deviation from the initial strategy than is necessary. This manager will operate on the four properties mentioned above, which are intention, self regulating, forethought, self reactive, and self reflective and will not often deviate from this without encouragement. They will also use the three properties also mentioned earlier, which are individual, when a manager brings his own personal influences from their own life experiences into the strategic planning and this will affect the way in with the company is managed and strategies planned. This manager will always though seek their own well being through the use of an external proxy agency, and secure whatever benefits they can from them, and collective when they want to pool knowledge, resources, skills and to make bonds to obtain what they cannot get. The desire to continue to use own experiences desires will always overshadow all else.
There is a lot to be said in regards to Agency Theory and Human Agency Theory. Both can
be effective and have their uses if used in the right way and in the right context. But they both have pitfalls which have to monitored. Both theories are widely used today, and have been used extensively in the past, and there are many examples that can be looked at. Overall it can be said that the different approaches are different in that one Human agency Theory is just that, it is a completely human look at the concept of strategising. It takes into account alk human aspects, including those of hope and wishful thinking. It allows for human emotion and feelings instead of factual information. Agency Theory is more power centred and although it is fundamentally based on factual information, there are holes in the practice which is mostly due to power struggles and insecurities.
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