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The financial environment of the firm is a complicated meshwork resulting into profits and losses. It is for the similar reason that the contemporary organizations are more apt towards the reality of the fact that by adhering to the profitable outcomes and striking between the social and managerial good the firm can sustain profitably in the market. The increasing competition and the growing intensity of the customer preferential behavior make it important for the firms to rely and understand the dynamics of the financial environment. All types of the business corporations are seemingly adapting the practices of financial scanning for long term gains and the same time developing and nurturing the goodwill of the firms' product and services.
The firms operate with an objective to maximize the wealth or the value of the firm. The firms try to adhere to the theory of firm in different time frames. Irrespective of the fact that a firm is operating in short run or long run it will strive to maintain the profitability at an optimal level. By considering the operations of a firm in short run the facets of the firm might be viewed from a different perspective. Short run is the time frame in which a firm cannot altar its outputs and capacity in terms of designing products, the quality of suppliers and moreover the operations and equipments. If a firm operating in short run is facing losses it still might continue its operations rather than shut down decision, depending on the degree and type of loss. Price is the sum of average fixed cost and average variable cost. If at a certain point the price of a good is greater than the AVC and if the price is equal to the AVC that the firm might continue its operations irrespective of short run losses. Because the AVC portion of the price covers the variable cost of the product and the firms can afford to produce the products. The law of diminishing returns is an extensive and widely applied law. The law advocates that in all dynamic processes if one or more factors of production are being continuously inducted while the other factors remain constant than the required efficiency can be attained but a point will arise when each unit increase in that factor will ultimately decrease the efficiency of the process
For financially sound decision making the firms are increasingly devoting a large chunk of their earnings in the betterment of the society and the maintenance of a good social image. It has been for this reason that the firms are now adapting ethical codes of conduct for justifying and avoiding all possibilities of litigations and financial downturns. The following paper is an attempt to illustrate the importance of understanding the financial environment with respect to the key stakeholders of the firm; the employees, the management, the consumers, society and the government. In doing so the ethical criterions are being established at corporate level to ensure that the national and the multinational corporations are not violating the primary and augmented codes of conduct.
Wealth Maximization the Foremost Objective of the Contemporary Firms and Its Consequences on the Customers, Employees and Management
The Objective of a Firm
The objective of the contemporary firms is indeed profit and wealth maximization. It has been noted that the efforts of the contemporary organizations are rigorous and reactive in terms of making, sustaining and accumulating wealth. The following paper is an attempt to discourse the reality of the fact in the light of academic literature that if firms are generating wealth for the good of the consumers, the employees, the management, the society or themselves only.
Boatright, J. R. (2006). What's Wrong-and What's Right-with Stakeholder Management. Journal of Private Enterprise, 21(2), 106+.
Boatright makes his point by describing the real essence of firm's objective. His literally articles and contributions asserts that a firm is indeed a collection of resources that are hefty enough to serve the interests of all the "Participants", additionally Boatright mentions that the working of the firm is much like the working of a market. Market is a place where the buyers and sellers exchange their interests and are mutually benefitted. He aligns this market practice with the operation of the firm because a firm becomes operational when the individuals bearing valuable assets opt for a collaborative "joint production" in a way that they develop a synergy in their operations and realize greater gains in the market with r3espect to the gains the partners would have realized by operating independently in the market. Boatright mentions that:
"Managers, for the most part, are economic actors like employees, customers, and other stakeholders. Their particular role is to provide managerial or decision-making skills. In so doing, they act like other market participants, making agreements and keeping their word, in a cooperative productive activity that benefits everyone." (Boatright, 2006)
This assumption of Boatright mounts that the operations and the objectives of the firm are financially balanced and are devised to generate the benefits to satisfy the entire chain of stakeholders. Firms are formed on an ongoing assumption this implies that the firms are established to survive forever, so if we are forming a firm on an ongoing assumption than we will have to satisfy the entire chain of stakeholders for the swift and ongoing firm operations. The firms are therefore operating to maximize the wealth. This particular trait according to Boatright cannot be considered unethical because businesses operate to generate revenues and these revenues in the form of taxation runs the economies at large. The point to consider mentioned by Boatright here is that the objective of wealth maximization needs to be augmented with a better off situation for the firms as well as the society.
Amadi, C. W. (2004). Reexamination of the Firm Value and Weighted Average Cost of Capital Concept. Academy of Accounting and Financial Studies Journal, 8(1), 29+.
Amadi makes the stance clear that by examination of the firms' values and the capitalization rates, also termed as the weighted average cost of capital the profit maximization ratios can be affirmed. For the similar reason Amadi quotes that
"Traditionally, the weighted average cost of capital has been used as the capitalization rate, with the after tax operating cash flow used as the relevant free cash flow. "(Amadi, 2004)
when we consider the dynamics of human behavior as guided by Behavior Economic; people today have a lot of choices but they usually form a decision that are not fully informed but on the contrary they employ simplistic decision making tools and habits to chooses among the alternatives. The model of Behavioral Economics supports the concept human decision making as a sub-discipline of the neo-economics. The behavioral economics indicates that even under the regular and most simplistic economic environments, the actual human behavior is observed to diverge from the assumptions and suppositions that are theoretically mounted. This is primarily observed because people usually make choices that at times does not falls into the domain of their personal interest
The basic ideology of the profit maximization is based on the tools and models of behavior economics. This is in fact a nascent discipline of the economics and it advocates the intervention of behaviors and human discretion based of full or less knowledge of the alternatives. The very reason why it is becoming increasingly important to utilize the economics tools for business success is that it provides a basic framework of the firm's operations and tools for profit maximization.
Lee, I. B. (2005). Corporate Law, Profit Maximization and the "responsible" Shareholder. Stanford Journal of Law, Business & Finance, 10(2), 31+.
Lee emphasized on the nature of the business organization and at the same time the litigations that are encompassed with it. Sole proprietor business organizations are unincorporated in nature. They are usually regarded as the autonomous service providers, in few cases counselors or even freelancers. The registrations and documentations of sole proprietorship are not complex as compared to other types of business organizations. The only requirement for stating a sole proprietor organization is the reporting of the income and expenses of the business to the required forms as prescribed by the state. They are considered the most convenient types of business organizations to set up as well as dissolve.
The tax implication of the sole proprietorship asserts that the total profits of the sole proprietorship by means of tax to an individual owner. This paves the way that the sole owner in this case shows the profits on the federal tax form 40 for the profits he earns from his business. This is considered as a meaningful and productive mean for the beginning a small business. The sole proprietorship is legally easy to set up. The restrictions and the legal obligations that need to be abided by are comparative easy than setting up a partnership or a corporation.
The basic disadvantage of the sole proprietorship from legal point of view is that of unlimited liability. This implies that if the business fails the single owner has to repay the debts from his personal assets or wealth. The single owner not only losses his capital invested in the business but also the assets the owner personally owned. From the accounting standpoint the sole proprietorship enjoys certain significances. As it is owned by a single owner it has an inevitable advantage of simplicity. The record keeping of business activities augmented with the cost of running the organization are managerial expertise are easy to exercise. The numbers of employees working in a sole proprietorship organization ranges from 1 to 10
Rundle-Thiele, S. R. (2009). Social Gain: Is Corporate Social Responsibility Enough?. Australasian Marketing Journal, 17(4), 204+.
Rundle focused his literal contributions on the nature of business organizations followed by the taxations and government revenues; he furthermore centered his arguments towards the better off situation for both the firm and the society, where profit maximization at both ends remained constant. Partnerships are unincorporated but they are segregated from the shareholders. But unlike the business corporations the partnerships are supposed to have at least one member who is regarded as the General Partner and he is suppose to have an unlimited liability for the business activities. Apart from the general member the partnerships are also known to have two shareholders on least. This kind of business organizations enjoys the profit loss sharing within the shareholders.
The tax implications of the partnership are extensive as compared to the sole proprietorship. The extent of business activities is a partnership is of broader scope so the earning and profits are also larger therefore the taxation is also high. Apart from the annual and quarterly taxes the partnership is also liable for the employee taxation as per the business activities.
The legal implication gives a cover to the partners forming a partnership. The rate of interest and share of all the partners is legally predetermined, this clearly indicates that sharing the profits and earning among the partners is a legal issue in a partnership. As a matter of fat partnership is generally among the two members, just like the case of sole proprietorship the each partner in the partnership bears an unlimited liability, but the limited share partners known as the limited partners holds the liability to the ratio of his investment in the business. If not legally incorporated the kind of business organization is likely to have issues pertaining the loans and securities. The accounting procedures are comparatively simpler. The basic theme behind the formation of the S- Corporations is to evade the double taxation issues. The type of corporation is suited well for the small enterprises and businesses. The tax implications are less complex and easy to handle as compared to C- Corporations. The accounting practices are also easy to manipulate. One of the greatest advantages of having a C-Corporation is the ongoing business assumption. It is observed that a sole proprietor as well as the partnership usually ends with the life of the owners. But in the case of a corporation the existence continues. As it is a transferable entity
Effects of Profit Maximization on Society
Ezzat Othman, A. A. (2009). Corporate Social Responsibility of Architectural Design Firms towards a Sustainable Built Environment in South Africa. Architectural Engineering and Design Management, 5(1/2), 36+.
Ezzat emphasized that profit maximization is state where the firm and the society can co exist. When the firms generate surplus profits they tend to pay hefty taxes and these taxes are paid in a better way and contributes towards the betterment of the society
Effects of Profit Maximization on Management
Hovenkamp, H., & Leslie, C. R. (2011). The Firm as Cartel Manager. Vanderbilt Law Review, 64(3), 811+.
Management of a firm is indeed the ultimate shock absorber, therefore Hovenkamp represented firms as the cartel manager whereby one or more than one firms join collaboratively and reap amplified financial returns.
Effects of Profit Maximization on Employees
Gberevbie, D. E. (2008). Employee Retention Strategies and Organizational Performance. Ife Psychologia, 16(2), 148+.
Designing an effective employee benefit and compensation program is the outcome of managerial expertise. In the given case it has been emphasized that the HR director of a midsized company will have to design and select the employee benefit program to balance the cost as well as the employee satisfaction. The most important attribute here is to identify that the organization is midsized and the HR director is making this decision for the first time. Organizational budget remains the most important point while determining the employee benefit package. At this point this becomes really important for the organization to ground on the formative and summative outcomes of the performance management system. By using a well designed performance management system it will become easier for the organizational to allocate maximum benefits in the available budget.
The contemporary organizations across the world are well versed with the importance of the fact that human power is among the most critical assets cherished by the organizations. The subject related content of human resources has particularly gained significant importance in the prevailing era on account of its importance in the organizational context. Work force planning is in fact a systematic approach that is used for identifying and addressing calculated gaps or discrepancies of the availability of human resources currently available with respect to the future needs and anticipated skill of the human resource needed to cater the future challenges of an organization. Subsequently the human resource planning forms the summative pillar of organization's success and strategic decision making. Hence workforce planning is a cumulative term that caters to the multidimensional aspects of managerial expertise, the human resources, and the related availability of financing and staffing. But yet the important point to rely here is specified by the systematic arrangement of workforce availability with respect to prospect changes an organization is likely to confront in the times to come.
Form the managerial point of view it is really important to exercise that the employee benefit program is cost effective. As it is already mentioned that the organization is a midsized organization, so the factor is implied that the availability of budget will be scarce and on the similar account it will also difficult to allocate the maximum benefits to the employees
Atkins, R. K. (2007). Multinational Enterprises and Workplace Reproductive Health: Extending Corporate Social Responsibility. Vanderbilt Journal of Transnational Law, 40(1), 233+.
The employee benefit program can be made more attractive and cost effective by two ways that are mentioned as follows
1: by the implementation of an effective and functional performance management system the organization will be able to assess that which key players need what kind of benefits. The organization can then design the training need assessment for the average of low performers, owing to the sensitivity of budget the training need assessment will be followed by in-house or on the job training. This will satisfy the stance of the employees and the organizations in a similar go.
2: secondly depending on the hierarchal level of the employees the HR director will divide amongst the intrinsic and extrinsic rewards. In this way all the employees will feel rewarded and motivated towards the attainment of organizational goal.
While considering the fact that the benefit program needs also to be employee friendly, the HR director will have to examine the fact that the benefit program and its criterion are well communicated with the employees at each level. The employee benefit program can be employee friendly by making it with an objective that the well motivated workforce is indeed the core asset that gives an edge to the organization. Hence by the due utilization of the above mentioned two strategies the HR director can attain the goal of selecting an employee friendly benefits system.
Key Stakeholders of Firms
Uesugi, I., & Yamashiro, G. M. (2008). The Relationship between Trade Credit and Loans: Evidence from Small Businesses in Japan. International Journal of Business, 13(2), 141+.
Uesugi illustrates the financial environment ant the firm decision making by the strategic approach. Strategic approach is an aggregate term that encompasses the contemporary organizational theory that emphasizes business value. The key requirement of the strategic management is the anticipation, envision and maintenance of the flexible organizational culture that creates a sense of goodwill for the organizational members and at the same time foster the process of progressive organizational changes. The contemporary organizations tend to demarcate the long term organizational goals on the basis of the strategic planning and values. The mainstream that forms this discretion of strategic goals is the assumption that an organization has been established to sustain forever- this is regarded as the ongoing business assumption. In order to survive profitably an organization needs to be engaged in the proactive strategic planning followed by effectively manipulating the information. Strategic leadership therefore calls for an effective utilization of organizations resources to maximize the profit generation over time.
Strategic management in contemporary organizations as a matter of fact is multifunctional in nature, like the managerial functions the purpose of the strategic management also calls for the planning, organizing, leading, and controlling activities of an organization in a profitable manner. Strategic management emphasizes the management of human resource. At this point it is integrally important to draw the clear differences between the manger and a strategic leader. A manager is designated to plan, organize, lead, and control the activities of one subunit of an organization whereas a strategic leader is designated to plan, organize, lead, and control the entire enterprise and the related data sources
The concept of learning organization is a derivative of strategic planning and management. The contemporary organizations are well adapted to the reality of the fact that for the long term profitable survival of the organization the organization needs to upgrade itself on regular intervals so as to match the global trends and to get a competitive edge over the other in the market place. The global complexities including the globalization and modern technological advancements makes it difficult for the organizations to adhere to the predefined cultural values and the organizations therefore determined to adapt changes quickly so that that severe losses can be minimized. The greatest challenge through the entire course of responding quickly to change is to induce the synergy in the employees of that organization so that the culture of change can be fostered.
The agenda that advocates the process of strategic planning and strategic leadership is the necessity of organizational change for the long term survival of the organization. The core aspect that needs to be fashioned according to the organizational needs and requirements is the human behavior; hence the management of the human resource is the core competency of the strategic planning and leadership.
Fifka, M. S. (2009). Towards a More Business-Oriented Definition of Corporate Social Responsibility: Discussing the Core Controversies of a Well-Established Concept. Journal of Service Science and Management (JSSM), 2(4), 312+.
Fifka denotes his academic contribution in terms of the more focused definition of corporate social responsibilities and business profitability.The importance of the strategic data analysis and manipulation is particularly emphasized in today competitive environment because of the unpredictable macroeconomic fluctuation and abrupt changes in the business cycle situations. It has been for this reason that the strategic leaders are designated the responsibility of the entire organizations and the strategic planning executed by the leadership likely to impact the standing of all the organizational members. The well defined tasks of the strategic leaders involve the establishment of the well defined organizational structure, allocation of the available organizational resources and finally communicating the strategic objectives and visions of the organization with the organizational members. The intensity of the responsibility as laid on the strategic leaders is far more in degree as compared to the managers and the supervisors, because strategic leaders are exposed to uncertain environment and they are responsible to cater the complex and interknitted problems at disposal and these problems can be within the organization or can be a consequence of external factors.
Batruch, C. (2011). Does Corporate Social Responsibility Make a Difference?. Global Governance, 17(2), 155+.
The strategic leaders are particularly important because they are expected to be the masterminds of organizational achievements. They are expected to process the information quickly, evaluate the available alternatives to cater the problem that is usually based on incomplete data, and in turn make the decisions that are generated to support the enterprise smoothly through the problem creating situation. From Barruch point of view the fact needs to be acknowledged that the decisions made by the strategic leaders affect the entire domains of the organization; it involves the utilization of more complex and scarce resources and endows wider ranging implications in the consideration of both space and time
The strategic planning is classified as the long term planning of an organization and there are vivid chances that a particular strategic leader might not be able to see the end result of his strategic decision to overcome any anticipated future problem. The strategic designs and decisions are implemented in an organization over the period of time and depending on the nature of problem and the decision made.
Perhaps in a nutshell- the strategic leaders enforce the decisions and policies for the betterment and long term sustainability of the organization and these decisions are implemented by means of the managers and supervisors. It is hereby required by the strategic leaders to develop strong skills so that the threats in the environment can be anticipated and the relative opportunities can be.
Why Securing The Stakeholders And Behaving Ethically Is Important?
Warren, B. W., & Rosenthal, D. (2006). Teaching Business Ethics - Is It a Lost Cause?. International Journal of Management, 23(3), 679+.
The needs and demands of the people today are changing rapidly and this predictable or unpredictable change is in turn increasing the product development challenges. The basic reasons behind the evolving needs and demands of the consumers are mainly due to the expanding horizons of technology, resulting in increasing consumer expectations, resulting in dramatic global competition where every company runs to secure and build its company worth
Four reasons that may result in fatal failure of a newly launched product are discussed. The first one is faulty product idea; a new product may fail because of a wrong or faulty product idea. A good idea can revolutionize the market that indicates the effective sense of a company to identify the changing needs and demands of the customers in the changing market place. And on the contrary a bad product idea can prove bitter to the firm, which will ultimately reflect the myopic marketing sense of the firm resulting in huge losses and complete product strategy failure. Second reason that may result in the failure of the new product is the distribution channel, the company might prove extremely outstanding in the advertisement campaigns but inadequate and untimely distribution can put the product back in the tills resulting in new product failure. The third factor that can contribute in the product failure strategy is the time of launching a new product, the reason owns a great deal of importance because the products launched at time of some religious festivals might be offensive for some community of the target population. Similarly the launch of off season products may result in the new product failure. The last rather the most important factor is the improper positioning of the new product in the mind of the consumers. The improper positioning refers to the faulty efforts of the company to deliver their core image to the target population and major portion of the target population may remain ignorant about launch of new product, that might be the right solution they of their changing demands. A company must hereby ensure that the target market of the new product have a clear idea of the new product and how it will cater to the ever changing need and demands of the target population
Vickers, M. R. (2005). Business Ethics and the HR Role: Past, Present, and Future. Human Resource Planning, 28(1), 26+.
The needs and demands of the people today are changing rapidly and this predictable or unpredictable change is in turn increasing the product development challenges. The basic reasons behind the evolving needs and demands of the consumers are mainly due to the expanding horizons of technology, resulting in increasing consumer expectations, resulting in dramatic global competition where every company runs to secure and build its company worth,
Wright, N. S., & Bennett, H. (2011). Business Ethics, Csr Sustainability and the MBA. Journal of Management and Organization, 17(5), 641+.
The magnitude of success of the marketing strategies of a new product is majorly depended upon the organization itself. As a matter of stated facts when an organization introduces a new product in the market they first have to identify the relevant answers of some questions like what is the product aiming at? What benefits will the user seek by this product? How the organization plans to position itself within the market and what differential advantages will the product offer over the competitors. Because the aim of marketing, is to provide the suitable collection of benefits to the end users of the product
Striking a Balance between Firms Wealth Maximization and Society
Angelidis, J. P., Massetti, B. L., & Magee-Egan, P. (2008). Does Corporate Social Responsibility Orientation Vary by Position in the Organizational Hierarchy?. Review of Business, 28(3), 23+.
Pro-activity is an adjective unique to effective information management. A need and importance of a proactive organizational culture becomes obvious in organization using bid data because changing and maintaining the decorum of the organization are sensitive issues for an organization. A proactive leader in the given scenario is the one who has a complete awareness of the consequences of the action he is taking and yet is enthusiastic enough to cater the tensed environment by taking appropriate decision at the right time. As for an organization such proactive leadership is an asset.
The idea behind information management for customer satisfaction is derived from the concept that, the consumers today have a lot of choices and the feedback of the customer shall be given a high priority to induce the re-buying behavior of the customers. The basic task of each level of employee I an organization is to maintain the satisfaction level of the employees that in turn will induce a prestige and delight in the customer. But the entire effort of satisfying and delighting a customer begins with the processing of information. Depending on the nature and specifications of the product or service, the following types of goods and their associated tactical importance to business success is justifies
Byus, K., Deis, D., & Ouyang, B. (2010). Doing Well by Doing Good: Corporate Social Responsibility and Profitability. SAM Advanced Management Journal, 75(1), 44+.
The effective and proactive utilization of Business Intelligence can help the management to infuse changes as the management and organizational hierarchy is in a better position of inspiring and guiding the employees. Proactive organizations have a tendency to generate the require output in a comparatively lesser period of time. Rather than engaging themselves in useless analysis and contingencies they focus of time and energy conservation to generate the require output. They are in a suitable position to gel the employees together in order to manifest performance par excellence.
The advantageous aspect of managing the information elevates when we begin to discourse the complex environment existing the fact takes strong roots that in order to succeed in the complex organizational environment the businesses need to strive hard and maintain the art of scanning the environment for two reason basic reasons, initially to diagnose the threats pertaining to a business and secondly due to customer satisfaction.
Creel, T. (2011). Corporate Social Responsibility: an Examination of Practices in the Retail Industry. Management Accounting Quarterly, 12(4), 23+.
Productivity as a matter of fact is the point of contention in organizational context. The reason of setting up and establishing the organization is to enhance the productivity. The information technology tools make it easier and cost effective for organizations to attain the motto of high productivity. The application of technological tools, including relational database technology, computer-aided designing, word processing, spreadsheets, enlarges the productivity of businesses
The most important aspect of business operations and processes is to attain a commercial advantage. The originations today enhance their commercial advantage by the utilization of adequate information technology tools
Organizations also need to ensure that this data stored in large volumes should be navigation friendly and the organizational members and authorized uses of the data may have a smooth access to the bug data sets. The velocity factor refers to the sensor or machine generated data including the web sites data and the click to stream links, this has amplifies the importance of real time used cases. The velocity factor of Business Intelligence amplifies the power and the ability to identify the novel sequence of the data trends. The velocity factor is also considered useful the process of phrase texting to detect the sentiments of the market place towards a particular product or service