Milton Friedman and profit maximisation
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Published: Mon, 5 Dec 2016
The only purpose of “the business of business is business” and the only social responsibility of business is to increase its profits.
And to utilize all resources and engage it in such activities that are designed to increase its profits. Consumer or customers are the useful tool who bring the cash flow or profits to the organisation which they use to flourish and to accomplish their goals and objectives.
The organisations exists only for making profits and by providing tangible or intangible products to their customers according to their needs and expectations.if the customers get satisfied ,they purchase the products or service and they give cash flows and profit to the organisations.if they are not satisfied they will go some where else to satisfy their needs and expectations, and get better value for their money.
Same thing for the employees ,if they are satisfied with the company or organisation,they will be more loyal ,will work hard , be more motivated for the company, if they are not satisfied they will leave the company and go some where else.
THE NEW CAPITALISTS ” SOCIETY & SHARE OWNERS ARE BECOMING
ONE AND THE SAME
Organisations use the stakeholders(investors) money to establish and to flourish its business. It describes the increasing ownership of millions of savers. These millions of savers are defined as ” new capitalists”. they include the individuals with retirement savings or pensioner’s, life insurance and other direct and indirect equity investments.
Company’s success is their primary interest , and this purpose of success can be good for the individual or single person but can be damaging for the larger economic system of the society.
There are thousands of organisations and companies that are doing businesses around the world that are being funded by the money of pensioner’s, and life insurances .The governments also utilize or invest the tax money in different businesses and companies around the globe. In this way the governments play a role of a stakeholder, when the companies in which the pensioner’s money is invested ,when they get profits ,they give dividends to the governments who have invested in them , the governments take the profit to pay their pensioners, they do this in order to support the pensioner’s.
CHARLES HANDY’S STAKEHOLDERS VIEW.
Charles accepts and argues that ” creating value where none existed”
According to him the first and the important need of an organisation is to meet
Expectations of the stakeholders.
According to this view the main purpose of the business is not to make a profit
It is to make a profit so that the business that can do something more or better.
That something becomes the real justification for a business.
A company’s stakeholders are individuals or groups with an interest ,claim ,or
Stake in the company, in what it does, and in how well it performs.
So the organisation has the responsibility to satisfy the needs and expectations
Of the people who bring cash flow and risk capital to the organisation, so it
Exists in the business market.
One of the most important choices that a company makes is to utilize the scrace resources and to balance the needs of the stakeholders by building sustainable development principles into all the aspects of the business activity.
After investors the suppliers get involved for providing the stock of raw materials .consumers /customers also get involved and they bring cash flow or profit to the organisation. Accually we can say that it is a cycle of investing ,selling and bringing cash flows. The money of the capitalists or the share holders which they invest in the company , they expect big chunk of dividends from the company as profits, but the board of directors want to give less dividends and keep the profits for the growth or for reinvestments or for flourishing the business further.
Any one who has an interest of any kind in the company is called a stakeholder, it could be an individual , a group ,or it can be an organisation of any kind that is affected by any kind of actions and decisions that a company may take.
Shareholders, employees ,suppliers, customers , financial institutions, government and society , they all are stakeholders, who directly or indirectly have interest of any kind in the company, and these stakeholders are interlinked with the organisation ,they can influence and can be influenced by the organisation.
On analysing the three views on the purpose of the business.I believe that the main purpose of the business is to make profit, the capitalists also play a very crutial role in the business, but I strongly believe and agree the view of CHARLES HANDY because I think that stakeholders are the legal owners of the company and the providers of the risk capital. The capital that the stakeholders provide to the company for investment is seen as risk capital because there is no guarantee that stakeholders will ever recoup their investment and earn a decent return. And I really think the organisation must really serve the stakeholders.
( B) What are the implications of these three differing views for Manager’s development of organisational strategy?
ANS:-An important and foremost part of strategy -making process is ensuring that the company maintains the support of its key elements —or stakeholders—on which it depends for its functioning and for its ultimate survival.
And it should keep in mind these following steps;
Identify stakeholders interest & concerns.
Identify what claims stakeholders are likely to make on the organisation.
Identify the strategic challenges.
These are the key steps that will identify who the organisation is really serving,what are the needs and expectations of our stakeholders, what are the basic concerns of our stakeholders and how we are gonna satisfy them by facing different challenges. Despite the experiences of many organisations around the world, it is possible to turn strategies and plans in to individual action plans, necessary to produce a great business performance. It is not an easy task ,many companies usually fail to motivate their people to work with enthusiasm ,all together , towards the corporate aims of the organisation .
Most companies know their businesses as well as their strategies are required for success. However many corporations fail to translate their strategy in to action that’s why they fail to implement and sustain it successfully.
In another study of 200 companies in the Times 1000, 80% of directors said that they had the right strategy but only 14% thought that they were implementing them well. No doubt linked to the finding despite of 97% of directors having the “strategic vision” only 33% reported achieving “significant strategic success”.
(source :- Why do only one third of UK companies achieve strategic success?-
I COBBOLD & G LAWRIE, 2GCLtd., May 2001.)
The message is very clear that –effective strategic realisation is the key to strategic success.
By corporate governance , we mean the mechanisms that exist to ensure that managers pursue strategies that are in the interests of an important stakeholders.
Professional managers are the agents of the stakeholders, as agents managers should pursue strategies that maximize long-run returns to stakeholders.
So for a manager it is important to realize the strategy of the organisation ,realize the stakeholders ,their needs and expectations, and how to satisfy them.
( C):- “Stake holders represent more challenges than opportunities”. Appraise the conflicting needs, power and influence of stakeholders?
ANS:- stakeholders groups are not usually homogeneous, but it contains a variety of sub-groups with different expectations and needs.A stakeholder is any individual or an organization that can or is affected by the activities of a business. They may have a direct or indirect interest and influence in the business, and may be in contact with the business on the daily basis or may be just occasionally,
A company’s stakeholders are individuals or groups with an interest , claim ,or stake in the company, in what it does and in how well it performs.
A company’s stakeholders can be divided in to two catagories.
Internal stakeholders —— External stakeholders.
Internal stakeholders are the stockholders and the employees, including executive officers, other managers , and board members.
External stakeholders are all other individuals and the groups that have some claim on the company . this group contains customers ,suppliers ,creditors, governments ,unions, local communities and general public.
STAKEHOLDERS NEEDS & EXPECTATIONS:-
All stakeholders are in an exchanging and interlinked relationship with the company . Each stakeholder group supplies the organisation with important resources or contributes one thing or the other to the company and in exchange, each expects its interests to be satisfied by the organisation.
Stockholders provide the organisation with risk capital or with the investment and , in exchange , expects management to try to maximize the return on their investment or inreturn they want a big chunk of dividends. Creditors such as bondholders provide the company with capital in the form of debt, and they expect to be repaid on time with interest.
Employees provide labour and skills and in exchange, expect good wages ,job satisfaction ,job security, and good working hours and conditions. Customers provide company with its revenues and in exchange want high quality reliable products that represent value for money.
suppliers provide a company with inputs and in exchange seek revenues and dependable buyers. Governments provide a company with rules, regulations and laws that govern business practice and In exchange they want companies that respect these rules and they work accordingly to their regulations and pay their taxes. Unions help to provide a company with productive ,loyal trust worthy employees or workers, and in exchange they want benefits for their members in proportion to their contributions to the company. Local communities provide companies with local infrastructure and in exchange
Want companies that are responsible citizens. The general public provides companies with national infrastructure and in exchange seeks some assurance that the quality of life will be improved as a result of the company’s existence. A company should take these claims in to account when formulating its strategies. If it does not , stakeholders may demand higher interest payments , employees may leave their jobs and go away, and customers may buy elsewhere. Suppliers may seek more dependable buyers. Unions may engage in labour disputes. Government may take civil or criminal action against the company. Any of these reactions can have a damaging impact on an company or organisation.
Managers cannot always satisfy the needs and expectations of all the stakeholders. The goals of different groups may conflict , and in practice , few organizations have the resources to satisfy all stakeholders needs and expecations. For example , unions claims for higher wages can conflict with consumer demands for reasonable prices and stockholders demands for acceptable returns.
Often the company must make choices. To do so , it must identify the most important stakeholders and give highest priority to pursuing strategies that satisfy their needs.
Power is the mechanism by which expectations are able to influence purposes and strategies . It has been seen that in most organisations , power will be unequally shared between and among the various stakeholders.
Power is the ability of individuals or groups to persuade , dominate the other.internal stakeholders have great influence and power on the organisations because of the authorities and power they have.
There are many different sources of power. But stakeholders may have power by other means.
Since there are a variety of different sources of power, it is useful to look for the indicators of power, which are the visible signs that stakeholders have been able to exploit one or more of the sources of power.
There are four useful indicators of power.
01— The status of the individual or group.
02— The claim on resources.
03— Representation in powerful position.
04— Symbols of power.
By looking at these four indicators , it may be possible to understand which people or groups appear to have power by a number of these measures. It should be remembered that the distribution of power will vary in relation to the particular strategy under consideration.
A similar understanding of the power held by external stakeholders can be useful. The indicators of power here are slightly different:
e.g. internal stakeholders have great power and influence in the organisation, if they are satisfied with the facilities and organisational environment /atmosphere , where they work the condition and the wages are good , they will work hard and be loyal to the organisation, but if they are not satisfied , they will distrupt the internal management, and they can bring uncertainty in the plans.like this other shareholders have their influencing power as well.
(D) How can organisations manage shareholders conflicts and handle issues of ethics ,corporate governance and regulation?
ANS:- The term ethics means right or wrong that governs the conduct of a person, the behaviour of members of a profession, or the actions of an organization. Business ethics are the accepted principles of right or wrong governing the conduct of businesspeople.
Ethical decisions are those by which we mean the right and wrong conducting principles that are accepted by the society, but unethical decisions are those that are unacceptable or which violate the rights.
” Corporate governance is a broad term that has to do with the manner in which the rights and responsibilities are shared among owners , managers and shareholders of a given company. In essence , the exact structure of the corporate governance will determine what rights, responsibilities, and privileges are extended to each of the corporate participants, and to what degree each participant may enjoy those rights. Generally , the foundation for any system of corporate governance will be determined by several factors, all of which help to form the final form of governing the company”.
The ethics issues that arise in an organisation and that are being faced by the managers have different aspects , but mostly it arises from the conflicting goals and objectives the company and the individual objectives of managers, and the rights of the stakeholders, including stockholders, customers, employees, suppliers , competitors, communities , and the general public. Stakeholders have the basic rights that should be respected , and it is unethical to violate those rights of the shareholders.
Stockholders have right to timely and accurate information about their investments, and it is un ethical to violate that right. Customers have right to be fully informed about the products and services they purchase, including the right of information about how those products might cause harm to them or others, and it is unethical to restrict their access to such information. Employees have the right to save working conditions, to fair wages for the work they perform , and to be treated in a just manner by managers.
Suppliers have right to expect contracts to be honoured , and the firm should not take advantage of the power ,and rewrite a contract. Competitors have the right to expect that the firm will abide by the rules of competition and not violate the basic principles of antitrust laws.
Those who follow the stakeholders view of business ethics often argue that we should respect the fundamental rights of stakeholders , because doing so will ensure the support of stakeholders , which ultimately benefit’s the firm and its managers. Others go beyond this instrumental approach to ethics to argue that in many cases , acting ethically is simply the right thing to do. They argue that businesses need to acknowledge the principles and give back in return some thing to the society for its development and growth.
Oftentimes , unethical behaviour arises in a corporate setting when managers decide to put the attainment of their own personal goals , or goals of the company , above the fundamental rights of one or more stakeholders group.
First it is important to recognize that business ethics are not different from personal ethics , which are the generally accepted principles of right and wrong doing of an individuals. As individually we are taught that it is wrong to lie and cheat —it is unethical—and that it is right to behave with integrity and honour and stand up for what we believe to be right and true. The personal ethical code comes from different sources , our personal ethical code will exert a profound influence on the way we behave as businesspeople.
This includes considerations as to how the conflicting demands of different stakeholders will be reconciled. It is useful to distinguish between contractual stakeholders–such as customers ,suppliers , or employees– who have a legal relationship with organisation and community stakeholders–such as local communities , consumers and pressure groups–who do not have the protection of the law to the same extent as the first group.
Managers are usually in a powerful position within organisations to influence the expectations of other stakeholders. They have access to information and channels of influence which are not available to many other stakeholders. With this power comes an ethical responsibility to behave with integrity . Given that strategy development can be an intensely political process, managers can find real difficulties establishing and maintaining this position of integrity. There is a potential conflict for managers between what strategies organisation and the shareholders. Integrity is the key ingredient of professional management and is included in the code of conduct of professional bodies, such as the Chartered Management Institute.
(Q) Critically analyse the content and relevance of the mission statements for each of the three different organisations (pg165), with regards to their goals ,values ,and objectives?
TATA STEEL as it is also well known as TISCO(Tata Iron and Steel Company Limited) was the vision and hardship of a single person “JAMSETJI NUSSERWANJI TATA” and the history of TATA STEEL is like hundred years old.
It is the largest steel company in india and is the worlds 15th largest steel company.
TATA STEEl company went through very hard routes to reach at the place and position where it is today. The modern and scientific methods from the west helped TATA STEEL a lot to survive and now it is the well known and recognised leader in steel in india.
” we aspire to be the global steel industry benchmark of value creation and corporate citizenship.”
” our people , by fostering team work , nutruring talent , enhancing leadership capability and action with pace , pride and passion.”
” our offer, by becoming the supplier of choice , delivering premium products and services and creating value for our customers.”
” our innovative approach , by developing leading edge solutions in technology, processes,and products.”
” our conduct , by providing a safe working place, respecting the environment, caring of our communities and demonstrating high ethical standards.”
Keeping in mind the vision and values of the founder jamsetji Tata, Tata Steel, is tring hard to strengthen India’s industrial base by proper utilizing its resources , like men and material. According to Tata Steel honesty and integrity are the essential ingredients of becoming a strong and stable organisation, and for economic activity profitability is the main path.
In Tata Steel’s mission and vision , their future direction or course of activity are very clear.
profit maximisation but it also keeps in mind the expectations ,needs of the stakeholders and try to do justice with them. This organization seems to be very promising about the ethical standard , working conditions and facilities for their workers. I n my opinion this is the key element for any organisation to flourish and survive for a long time.
Tata Steel has used this and other key elements and has survived for more than hundred years by its great commitment of becoming the first choice as a supplier by providing the best products , services and by creating a good value for its customers, by utilizing modern technology to process its products .
In all these process they are very much concerned about the communities and most of all the environment. By keeping good reputation in the industry ,they are building a very good image of India in all over the world.
Tata Steel’s main objective is to become a leader in steel industry by utilizing all its available scare resources and keeping the exising clients happy and getting new clients as well for its maximum profit and keeping employees happy as well.
It is a very challenging objective but not impossible one.
THE METROPOLITAN POLICE:-
In the world every country ,society or community have their own security or police departments or force, which are there to protect , secure the person’s and properties. Police is a department under the controll of the government to keep peace and secure society.
Governments make laws and regulations for the betterment of the society or community and the police reinforces them, so that the society can benefit.
It is a very challenging job , they have to be alert every seond for stopping the anti social activity or behaviour.
Like that Metropolitan police is the force of England to keep the society at peace.and to stop the anti social behaviour and attitude which is like an ulcer of the sosiety ,which can harm the stability of the society.
” working together for a safer london.”
Increasing public confidence and satisfaction .
Preventing and reducing crime , disorder and vulnerabiliy.
Increasing safety and security.
Improving quality of service.
Being efficient and effective.
Working together with all our citizens , all our partners, all our collegues.
We will have pride in delivering quality policing ,there is no greater priority.
We will build trust by listening and responding.
We will respect and support each other and work as a team.
We will learn from experiences and find ways to be even better.
According to the mission ,vision and values of metropolitan police , i strongly believe that it enforcement of law and order , protecting personal properties, and keeping peace and stability in the society and reduction of the civil – disorder. It is a hard job but it is not impossible as England has a multi-national cultures existing and surviving in it, and this is the biggest challenge that is being faced by the metropolitan police.
Its course of direction is very clear, i believe that TATA STEEL is much more promicing about the ethical standard , and is more committed.
Metropolitan police still has to work hard to build its image .
VILLEROY AND BOCH:-
To be the leading European lifestyle brand with high competence and trend -setting style for high-end design and living.
FIVE VALUES —ONE PHILOSOPHY
CUSTOMERS: our success is measured through the enthusiasm that our customers or consumers show while purchasing our products and services.villeroy and boch have a constant challenge to satisfy the needs and expectations of the customers , retailers, architects.we convince them through competence and experience.
EMPLOYEES: To have a strong position in the market for a long run , you should have innovative and committed employees. Our priority is motivation and cultivation of their team spirits, and encouraging them to achieve personal goals as well as collective goals.
INNOVATION: if we claim that we have the leading position in the international markets , then it will not be easy to follow the trends.
Those who want to have or to secure their competitive edge must recognise and shape new trends earlier than the others.
company and achieve long-term success. The foundamentals for this are a balanced portifolio, earning -oriented growth, high and constant rates of return and appropriate dividends.
RESPONSIBILITY: not many companies have made regional economic history as well as Europeon cultural and social history. Villeroy and bosh is one of them , and thus bears many responsibilities. We feel obligated not only to our employees, shareholders and customers, but also to the environment and society.
This organisation or company has a very strong image , and its mission ,vision and values are very high standard,as it is the European leader and the trend setter, to main tain its position and to sustain its long term success it has to beat others by maximizing its competitive advange and by minimizing its treats or by converting them in to opportumities.
To maintain its position it has to be more faster than the other companies , it has to be more creative and innovative ;
As CHARLES DRAWIN said
” it is the strongest of the species that survive , nor the most intelligent, but the one most responsive to change.”
As we all know we live in a very dynamic world, our choices and preferrences are changing day by day , so as being a leader or a trend setter , it has to be very innovative and it should quickly respond to the changes before others. It is also a customer valued organisation, as customers are valued and their needs and expectations are given importance or are preferred.
This organisation also pays attention to its employees which are its front line, and who help it to achieve its sustainability in the market.i believe that this is the key element to success of this organisation, by building team spirit and by indulging them together in such way that the collective goals are achieved.
This organisation has a very strong image , it is very promising and very much determined and committed.
As being a European leader it is equally paying attention on internal and external elements that play a crutial role in its success.
This organisation is not only taking advantages of its strengths and opportunities but it is also indulging its weaknesses into opportunities and also tackling threats as opportunities and it is trying to over come them.
So i think in my opinion villeroy and bosh are more challenging and strong organisation in their mission ,vision and values , then is the Tata Steel and in the end comes metropolitan police.that has to work very hard to potriate its image in the minds of the people.
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