Strategic Management: Formulation and Implementation

Other Theories Of The Firm

A number of other authors have offered theories in an attempt to explain the behaviour of organization and the objectives they seek.

Baumol: Sales maximization.
Baumol (1959) argues that firms seek to maximize sales rather than profits, but within the constraint of a minimum acceptable profit level.
Williamson's model managerial discretion.
Williamson (1964) argues that managers can set their own objectives, that these will be different from those of shareholders and that managerial satisfaction is the key. Satisfaction increases if profits exceed the level required for the essential development of the business.
Marris's theory of managerial capitalism.
Marris (1964) postulates growth as a key concern, as managers derive utility from growth in the form of enhanced salaries, power and status.
Penrose's theory of growth.
Penrose (1959) argues that an organization will seek to achieve the full potential from all its resources. Firms grow as long as there are unused resources, diversifying when they can no longer grow with existing products, services and markets. Growth continues until it is halted. Changes can free the limit, and growth continues until the next limiting factor appears. In a climate of reasonably constant growth and change managers learn how to cope with the dynamics of change.
Galbraith's views on technocracy.
Galbraith (1969) describes the role of large corporations. These corporations seek to control their environment as far as they possibly can, influencing both government and consumer. In turn, the corporations are controlled by "technocrats" - teams of powerful experts and specialists. Their purposes are firstly to protect as well as control the organization, and hence they seek financial security and profit. A price competition is not seen to be in their interests, and therefore aggressive marketing and non-price competition is stressed. Galbraith has identified the growth of "countervailing power" to limit this technocracy (the growth of trade unions it the past is an example of this).