theories of business firms understanding the profit making behaviours of firms neoclassical...
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Theories of Business FirmsUnderstanding the Profit making behaviours of Firms
• Neoclassical• Behavioural• Agency• Transaction Cost• Value Chain• Porter’s 5 forces of competition
Explains what shapes the systematic structures of firms in responding to their external environments
Systematic structures
Cause driversWhy?
Impact driversWhy?
P/L = Revenue - Costs
Customer, Performance, Scope & ScaleValue Add
Neoclassical Theory
SpecialisedProductionsInputs
People
Outputs
Capital
Products/Services
The Perfect & Closed Systematic Efficiency Perfect Competition
Environment
Supply Demand
Every decision is equal
Info has little value add
Little use for IT systems
Maximised ProfitProduce to sell to outside the firm
Behavioural Theory
Behavioral Theory
ResourcesPeople Profit Satisfactory
Every person contributes to
Profit
Info has value add
HRMBudget
Involvement of employeesDiversity of employee’s motivationsManagement of employees’ performance
People are irrational decision makers because of• Varying different info access• Varying decision making skills• Varying time constrains
Neoclassical Vs behavioural Theory
QB4) What is the fundamental difference between the neoclassical view and the behavioural view of firms?
Agency Theory
AgencyTheory
ResourcesPeople Profit Satisfactory
People Agents
….but people are different and have different interests, motivation drivers, social status regards, profit expectations, etc
Maximum
Every decision is not equal
Info has value add
Decision support
HRM
Budget
Full of People Issues Therefore costs because of Clashes in interests, personality, authority....
Transaction Cost Theory
Transaction Cost Theory
ResourcesPeople Profit Maximum
Cost
Product/Services
Capital
Outputs
Least for Most
MarketValue
Info has value add
+Cost driversEfficiency measures productivity & budgetValue driversMarket value measures efficiency, effectiveness
Efficacy Driven
Porter’s Value Chain
More complex micro information needs
Info has value add
Managing & coordinating a firm’s activities to create Value Adds that contributes to higher Profits
Porter’s 5 Competitive Forces(Competitive Advantage of Firms)
More complex micro & macro information needs
Info has value add
Basis for formulatingCost leadership strategies
Value Differentiation strategiesNiche – mix of the above
Porter’s Diamond Theory(Competitive Advantage of Nations)
More complex micro & macro information needs
Info has value add
Resource Based View of Firms
Resources & Capabilities•Skilled People•Facilities•Equipments•Materials•Methods of Work•Design IP•etc
Products & Services
Goods Production
Service Provisioning
Inputs Outputs
Short termInputs
Long termCompetitive Advantage
Core Competencies
Resources & Capabilities•Skilled People•Facilities•Equipments•Materials•Methods of Work•Design IP•etc
Products & Services
Goods Production
Service Provisioning
Inputs Outputs
Core Competencies
Sustainable Value
Unique
Difficult to imitate
What are the characteristics of resources that enable competitive advantage?
Core Competencies
Resources & Capabilities•Skilled People•Facilities•Equipments•Materials•Methods of Work•Design IP•etc
Products & Services
Goods Production
Service Provisioning
Inputs Outputs
Core Competencies
Sustainable Value
Unique
Difficult to imitate
Can an IS by itself provide a business with sustainable competitive advantage?
Core Competencies
Resources & Capabilities•Skilled People•Facilities•Equipments•Materials•Methods of Work•Design IP•etc
Products & Services
Goods Production
Service Provisioning
Inputs Outputs
Core Competencies
Sustainable Value
Unique
Difficult to imitate
According to RBVF theory, whenever identical firms populate an industry, any one firm CANNOT enjoy sustained advantage? Do you agree?
Theory Information Requirements
Neoclassical
Behavioural
Agency
Transaction Cost
Value Chain
5 Forces
Resource based view of firms
Class work
Static batch
Dynamic real-time
Strategy
PlannedStrategies
AccidentalStrategies
Intended /Deliberate
Emergent
Realised strategies= Goals Achievements
Unrealised strategies= Goals Achievement Gaps
Realised emergent Achievements
A strategy is a set of coordinated actions intended to:1. Give a firm business advantage in one or more locations2. Achieve some underlying enterprise goals that shape this business
advantage
Strategy Perspectives
Also different information capture & reporting
perspectives
Structure – Control Frameworks• Risks • Enhancers
Contents – The Plans• SWOT patterns &
leverage actions
Context – The Reasons• Business /social positions
Strategies @ Different Organisational Perspectives
Market / Product Strategies
Business Unit Strategies
CorporateStrategies
Locations
Locations Locations
IT systems need to provide information at different organisational to product level perspectives & by different
locations and therefore their different currencies, legal compliance reporting systems, etc
Types of International Strategies
IT systems need to cater for these different strategies’ information needs, eg:• Strategy tracking systems• Market intelligence systems• ERP analytics• CRM analytics
Assignment Case StudyWhat challenges does Brian Smith faces in supporting Modemeter’s new business directions?
CEO – John Johnson
CIO BrianSmith
Modmeters – North American firm globalising in 3 continents
1. Requiring ICT capacity to support global operations2. Direct to Customer Sales Capacity3. Name & Logo Change Deployment
Countries ICT infrastructures are not the same:• Hardware & software differences• Support & maintenance differences• Staff access & training differences• Current systems - fragmented
Assignment Case Study
CEO – John Johnson
CIO BrianSmith
Modmeters – North American firm globalising in 3 continents
1. Requiring ICT capacity to support global operations2. Direct to Customer Sales Capacity3. Name & Logo Change Deployment
How to restructure – decentralised or centralised or bothCapacity to support multi-location ICT service provisioning
• Multi-site coordination issues• Change management issues in supporting new or
terminating existing practices• Different ICT infrastructure quality & capacities in countries• People challenges – lacking capacities in cross culture
communications and managing cultural diversity
Honda Supercub
Macho man’s machineNice people’s bike
Dominant US brand & market share during the 1950s……
…. Introduced in 1959……
Now dominant brand & market share
Japanese time based strategy ?
Japanese emergent strategy ?
1. Is Honda’s US strategy deliberate?2. Is this an emergent strategy?3. What can happen if Honda promotes the budda’s
eyebrow feature in the handlebar’s design in the past and NOW?