Discuss about the Agency and Deterministic Approaches in Organisations.
The theory of agency can be defined as the conception that human beings are capable of original ideas and are capable of acting in a particular fashion. The theory also recognises that human beings are capable of either acting or adaption to turn the effects of external environment to their own advantages. The deterministic theory as opposed to agency theory, proposes that human beings have no power to control or innovate. The theory further believes that external environment controls the actions of human beings and that man has no control over his environment. If the paradigm wars of the two theories are applied in case of the corporate organisations, they come into play in a big way. The agency theory states that individuals can control their actions which correspond to the internal environment of the organisations. The deterministic theory speaks about uncontrollable and formidable external environment which can be interpreted as the macroeconomic environment. External or macroeconomic environmental environment impact the organisations and require them to form strategies to adapt to it. The organisations form their internal policies or microeconomic environment which they control to adapt to and take advantage of the external environment. Thus, it is possible to reconcile these two theories because no organisation is beyond the effects of the external environment and again all organisations make their own internal environment to use the external environment to their profit. Hence, these two theories come together to form the universal organisational theories which means organisation balance between these two theories.
The organisations are under the strong impact of the external world or environment which decides every aspect and operations of them. To start with, organisations are totally dependent on the external environment which corresponds to the deterministic theory. The external environment is composed of political, economic, social, technological, environmental and environmental summarised as PESTEL. The political factors like laws and policies are the determining factors of the corporate world. The factor is more prominent and crucial for the international companies compared t their national and small scale alternatives. The laws formed by the international bodies like the European Union and the national governments determine the very strategies and policies framed by the companies. For example, companies have to frame their policies according to the laws like taxation, labour and so on. The multinational companies like Unilever and ThyssenKrupp have to abide by the export laws pertaining to free trade and subsidies set by European Union while trading with the European countries. The European airline companies can take advantage of the EU-India agreement to operate flights (ec.europa.eu 2017). It goes without saying that the laws formed by the governments and the international bodies are not under the control of the organisations which correspond to the deterministic approach. Air France the airline company of France operates flight services in India based on the EU-India agreement but cannot spread it into other nations (Airfrance.com 2017). Thus, organisations make internal policies to take advantage of the laws. Here, it can be opined that organisations apply agency theory to deal with deterministic theory. The make innovative products and services of their own to expand into countries confirming to the laws (Epstein and Buhovac 2014). Thus the paradigm wars between these two theories make the organisations form strategies to thrive in the market.
The companies are dependent on the external environment because they acquire materials and labour from the communities, thus confirming to the deterministic approach. They acquire raw materials from the supply chains in various countries. Unilever manufactures and markets over hundreds of products like soaps, ice creams, tea, coffee, tooth pastes, food products and so on. The company owing to its vast product line buys materials from a large number of suppliers. The company maintains a high quality supply chain so that its products confirm to the requirements pertaining to the product quality and standard (Unilever global company website 2017). Failure to confirm to the material standards and requirements can have detrimental effects of the market position of companies and lead to losses worth billions. Nestle, the largest manufacturer and marketer of food products in the world owns the brand Maggi noodles. Maggi is consumed by millions of people all round the world among which India is one of the leading consumers. The test on Maggi found presence of harmful chemicals in the noodle products which led to its ban in the country (The Indian Express 2017). The ban resulted in losses worth billions of dollars and weakening of the market position of Nestle. The food giant in order to counteract the losses ran advertisements and online campaigns to restore faith in the product (Bhushan 2017). The first example, the ban on Maggi was an example of deterministic theory because Nestle had no control over it. The advertisement campaigns run by Nestle exemplified the attempt of the company to deal with the external change or the ban. Thus companies take steps to deal with external impacts like government ban which proves deterministic and agency theories coexist in the modern organisations.
The organisations obtain human resources from labour markets to commence their operations. Their talented employees using their qualifications, skills and competencies perform functions which earn them their market positions. The organisations should provide their human resources legitimate compensations and facilities in return of their services (Lee and Kim 2014). The laws and policies pertaining to the employment of human resources are formed by government which are beyond the control of the organisations. The Fair Work Act 2009 governs the employer and employee relationship in Australia. The act provides for minimum compensation, flexible working hours and fairness of work opportunities to the workers in Australia (Fair Work Ombudsman 2017). The act exemplifies deterministic theory because the companies have no control over the government but has to abide by it. They frame innovative work policies for their employees to incorporate the act in their employment policies. Telstra, the leading telecommunication company of Australian origin provides facilities like health benefits and flexible working hours confirming to the act. Thus, it shows Telstra is following to agency theory employee friendly policies to deal with the deterministic Fair Work Act 2009 (careers.telstra.com 2017). This discussion proves that organisations incorporate both the theories to develop their own organisational theories.
Technology today plays crucial role in every aspect of the organisation and is dependent heavily on external factors like available resources and financial conditions of the countries. Adoption and diffusion of technology in organisations depend on the level of advancement prevailing in countries, natural resources and several factors over which they have no control. These factors impact their use of technology in production, operation and all other areas. The big multinational companies can invest in technology to acquire modern machineries and softwares to ease their operations. They over here can use their funds to acquire technology from the outside world over which they cannot exercise control. They can also use their financial and human resources to acquire them. Thus firms have no control over external environment and can only acquire machineries to adapt to it. Big corporate giants like P&G and Microsoft can acquire technology to bring about innovation in their products and ways of operations (Blomkvist, Kappen and Zander 2014). The small companies cannot afford to acquire modern technology and mass produce goods. Here it can opined that the scarcity of funds inhibit small companies from inducing modern technology. Thus the discussion reveals that financial and resources strength can be used to deal with external deterministic factors.
This requires the companies to manage human resource, funds and technology to ensure exploitation of external market. The companies apply various organisational theories in their work environment to optimise their organisational culture. They have horizontal structures of bureaucratic control which ensures efficient decision making machinery built after Weber’s theory (Fukuyama 2013). They manage their employees scientifically and strategically after the Taylor’s scientific management theory (Morse, Babcock and Murthy 2014). They divide their total target into several parts which they distribute among the departments based on area of expertise and specialisation. This division of labour follows the organisational theory by Adam Smith and is aligned to the business goals of the organisations (Durkheim 2014). Thus the companies combine strategies and organisational theories to control their resources to take operate in efficient ways. They bring about innovations and researches to use their resources to adapt to the external deterministic factors in the environment. For example, the companies carry out continuous innovations and researches to introduce new products and improve the existing ones to cater to the growing customer needs. The customers, materials and human resources are not generated by the companies but the organisational structures and products are. The first three are components of the specific markets which are not under the control of the companies. The companies acquire these resources to gain competitive advantage in the market. Thus, application of agency theory to develop or acquire resources helps them to deal with deterministic environment. The companies develop universal organisations culture based on several theories to suit their structures and business goals. Thus, organisational theories and strategies are expressions of the agency theories which can be adopted to adapt to stand the external environment challenges.
The most challenging situation the organisations face from external environment is the challenge to generate huge profit by operating in sustainable ways. The companies involved in sectors like mining, manufacturing, energy production and construction provide the raw material and support system to all other industries. They are among the highest revenue earning companies in the world and come under strict supervision of national and international bodies. They also generate high amount of pollutants during the course of the production which brings them under the purview of environmental laws. These companies are investing hugely in technology and infrastructures to shift towards sustainable and environment friendly production. For example, Renault is concentrating on manufacturing vehicles using electricity as fuel to cut down pollution caused by petrol and diesel smoke emission. The company is determined to ensure ethical practices to ensure benefit of stakeholders like employees, shareholders and society at large (Group.renault.com 2017). Thus, this example once again shows that the companies can adapt their strategies and operations to deal with the impact of the external market.
The macro environment represents the deterministic external forces over which the companies have on power. The agency functions tell that organisations are capable of bringing about innovation to deal with the external deterministic market. They develop their own business models after the agency theory which help them to sustain the stiff competition (Chesbrough 2013). The competitive market experiences entry of new firms which challenge the existing firms. The multinational companies acquire firms or enter into joint ventures to enter new markets. This poses challenge to the existing companies but they cannot prevent the entry(Brush 2015). Wipro acquired heritage beauty cosmetic brand Yardley to enter the premium beauty segments. The company manufactures after shave lotions and poses stiff competition to the existing brands like Axe by Unilever and Old Spice by P&G (The Times of India 2017). The two companies namely Unilever and P&G are known for their deep understanding of changing consumer needs. These two companies bring about new products and introduced better versions of existing products to deal with threats from new entries. P&G owns two men accessories brands, Old Spice and Gillette. The company under its brand Gillette introduces razors, shaving creams and shaving creams having modern technology to provide superior comfort to the users (News.gillette.com 2017). The above example clearly shows that companies introduce new innovative products to deal with the threats from new companies and substitutes.
The above discussions list variety of impacts provided by the external environment over which the organisations have no control like government laws and new emerging competitors. These impacts represent the deterministic nature of the market which forces companies to adapt to them. It can also be stated that the strategies formed by the companies to deal with these impacts help the companies to suit the impacts. These strategies taken by the companies correspond to the agency theory which upholds the power of the companies to form strategies and innovation to thrive in the market. The companies form their unique business strategies according to their organisation structures to create their own business models. Thus, the fact that organisations form their own theories to balance the tow former theories is justified and proved.
References:
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Bhushan, R. 2017. Maggi ban impact: Nestle India may take 3 years to recover Read more at: https://economictimes.indiatimes.com/articleshow/51114562.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst. [online] https://economictimes.indiatimes.com. Available at: https://economictimes.indiatimes.com/news/industry/cons-products/food/maggi-ban-impact-nestle-india-may-take-3-years-to-recover/articleshow/51114562.cms [Accessed 7 May 2017].
Blomkvist, K., Kappen, P. and Zander, I., 2014. Win, place, or show? How foreign investment strategies contribute to the technological growth of the multinational corporation. Long range planning, 47(1), pp.16-31.
Brush, C.G., 2015. Export Entry in Small Companies: Effecs of Timing on Strategy and Performance. Journal of Small Business Strategy, 7(3), pp.53-68.
Chesbrough, H., 2013. Open business models: How to thrive in the new innovation landscape. Harvard Business Press.
Durkheim, E., 2014. The division of labor in society. Simon and Schuster.
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Epstein, M.J. and Buhovac, A.R., 2014. Making sustainability work: Best practices in managing and measuring corporate social, environmental, and economic impacts. Berrett-Koehler Publishers.
Fair Work Ombudsman. 2017. Welcome to the Fair Work Ombudsman website. [online] Available at: https://www.fairwork.gov.au/about-us/legislation [Accessed 7 May 2017].
Fukuyama, F., 2013. What is governance?. Governance, 26(3), pp.347-368.
Group.renault.com. 2017. Our corporate social responsibility principles. [online] Available at: https://group.renault.com/en/commitments/vision-of-social-responsability/social-responsability-principles/ [Accessed 8 May 2017].
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Morse, L.C., Babcock, D.L. and Murthy, M., 2014. Managing engineering and technology. Pearson.
News.gillette.com. 2017. Gillette Launches New Fusion® ProShield™ with Lubrication Before and After the Blades to Shield against Irritation | Gillette News. [online] Available at: https://news.gillette.com/press-release/product-news/gillette-launches-new-fusion-proshield-lubrication-and-after-blades-shiel [Accessed 8 May 2017].
The Indian Express. 2017. Ban on Maggi: High Court lifts ban, orders fresh tests within 6 weeks. [online] Available at: https://indianexpress.com/article/india/india-others/ban-on-maggi-lifted-bombay-hc-orders-fresh-test-of-noodle-samples/ [Accessed 7 May 2017].
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