ORGANIZATION :PART 3:MANAGEMENT OF BUSINESS 

The tension of our times is that we want our organizations to behave as living organisms but only know how to treat them as machines-Margaret J Wheatley

Origin of firms

Firms are groups of individuals who coordinate their work to produces product for exchange. The cooperation abolishes transaction costs which will occur if an individual attempts to create separate contracts with others to produce all intermediate objects in a market situation. Moreover when objects require joint cooperation to produce ,the efforts of each cannot be quantified. In such a situation a uniform wage in a firm gives equal incentive to work irrespective of nature of work. 

     Firms require a market to sell their goods. It has been seen that presence of a market for a product automatically gives birth to a number of firms producing it. Moreover as size of market increases the number,size of firms increase as does their complexity of operations,products,geographical divisions .The Japanese car manufacturing firms had increased market access thrice: When govt banned foreign car plants during world war, when domestic car market increased due to increased wealth and lastly when foreign ,especially US market was accessed by Japanese firms. Each time the firms increased in size and complexity of operations,

  Evolution of firms into autonomous organization

When the firm arises as a startup it is the founder who along with a small team is responsible for all the diverse function. The team at this stage is undifferentiated. All are supposed to work in multiple roles such as producing a prototype,creating a market survey for the product,contributing capital from own source or bank/venture capital loans,marketing the product, appointing a work force,their job profile and target fixation, pay and allowance ,accounting and maintaining cash balance ,calculating profits and so on.

  As the firm grows in size the various functions are delegated to specialist teams such as finance,operations,Human Resources. These teams function according to certain rules such as accounting procedures,operation and HR principles. The higher management may not be aware of the detailed rules in each field and any decision by them necessarily requires consultation with the various teams. Moreover the heads of each department have decision authority within his team. There would be cross departmental decision making such as for new appointments in a department by Human Resource department.When firms have multiple geographical divisions a copy of the parent organization with all departments and routines is made. The geographical division is again headed by a team which is supervised by the headquarter team. In a large firm decision making thus gets distributed and interrelated  leading  to autonomous  working  of departments and divisions.

    Firms need to monitor the performance of their employees and quantify their output. This is as much to prevent shirking as to reward good work. Whereas it is easier to monitor marketing output from actual sales certain activities such as teaching or nursing cannot be quantified. The best means to motivate is to foster a professional code of conduct as is present for doctors ,lawyers. The proffesional has an internal motivation to follow the code. Another excellent method is to create a learning organization at all levels as in Toyota  manufacturing system. Here from supervisors to engineers all are expected to suggest process improvement on a routine basis. This makes work interesting as well as creates new more efficient routines.

Routines of work in firms:Basis of autonomy

The firm is enmeshed in routines. These occur for low level workers for supervisors as well as department heads. Broadly managers are required to ensure two things: There should be adequate inventory  ,capital,workers at all levels at all times. This ensures that products are continuously available and sold. Production operation thus requires capacity time calculation,sharing of resources in different production lines.forecasting demand and capacity planning,supply chain management and preventing bull whip effects.In Human Resource planning it requires accurate calculation of future skill gap and initiating recruitment well before actual shortages. In finance it requires providing initial capital requirements based on legal structure of firm,calculating profit and break even sales,

    The other requirement is to ensure quality in every process. Defects in production leads to wasted production ,increased after sales service cost. Manpower defects create lasting problems till the staff retires or is released. This can be ensured by attracting and selecting the best workers,training them in company culture and routines,retaining them with salary ,benefits and promotions. In finance management accounting detects waste in production,financial accounting detects amounts receivable state,tax planning and saving

Learning in firms and permanence

Organizational routines are the backbone which runs an organization. Routines need to be efficient to reduce waste and time. They need to be continuously improved to adapt to changing external and internal environment . Mostly they need to produce new routines better than their competitors. 

  Routines are learned initially by imitation. Thus foreign firms introduce efficient production processes in a country and these are copied. This is what Toyota did when Ford motors started factories in Japan. Next  comes size of market and competition between firms. This occurred in Japan thrice and each time numerous firms competed and learned from each other, Thereafter comes the incidence of the complexity of an economy with a large number of different industries which have common processes can help. Both textile manufacturing and aircraft manufacturing production techniques were adopted in Toyota car manufacturing production system at various times.

 Lastly and most importantly certain firms like Toyota are exceptional in evolutionary learning. Here the problems faced by a firm are completely new and no previous experience helps.Facedwith increasing consumer awareness and safety consciousness Toyota made it their aim to incorporate safety features which were unique to it. Similarly to prevent environmental pollution Toyota built engines which were pollution reducing . The aim was to innovate to protect environment. The Toyota production faced a lack of young workers in Japandue to demographic problems. To make their work interesting Toyota made the production line small and sequential but independent. Now workers were knowledgeable about their line and worked to further improve it. For suppliers Toyota created a system which rewarded long term contracts based on mutual help in planning ,training. This created loyal suppliers. The hallmark of evolutionary learning is looking after stakeholder interest. In finance Toyota has accumulated huge profits which it does not use to buy own stocks or give as dividends. Instead in a business downturn lt uses this cash to create new factories and not discharge any workers.For evolutionary learning the firm requires to look after interests of consumers,workers,suppliers,environment and other stakeholders.

   New technology firms and Design

While the above management principles were discussed they related to manufacturing and retail firms. Today the market is however dominated by knowledge firms such as Microsoft,google,Amazon,Tesla,apple. What is common to all these firms is that product design is the main activity of the firm and where present manufacturing  or retail is subservient to it. Thus Microsoft works to create enterprise solutions of other firms to make them intelligent. Amazon has devised a virtual network which fascilitates retailers and consumers to exchange information about products and purchase them. The actual storage ,packing and transport is not the principal strength. Tesla and apple have innovative designs for cars and mobiles respectively. The actual production of the car or  a mobile is outsourced to a low cost country like china . Franchise in McDonald is also based on designing an eating experience and copying the same and giving operating rights to others.

     Whereas technology firms need to innovate in design they require to hire top talent and retain them. Technology  workers are thus given  good pay and working conditions whereas those in manufacturing,supply chain are neglected.Firms depend on venture capitalists stock markets for raising capital rather than debt from banks. The firms have large revenues but low profits and thus are completely dependant on perceptions about their future growth  in the stock markets.Management thus have to create the right impressions about future growth before stockholders to survive.

Ack:The everything store,The Nvidia way,The Microsoft story,The Tesla way,Managerial economics and organizational structure,The evolution of a manufacturing system,Toyota,The Toyota way,Small business finance-Dummies,