Evolution of understanding the main purpose of the...

Evolution of understanding of the main goal of the business and its results

The main theoretical approaches have different views on what to consider as the main criterion for the success of an activity

any company, what performance management tools should be used. The degree of formalization, the ability to measure individual components of performance management models also vary significantly. The greatest attention is paid to the problems of business performance in the economic theory of the firm, the theory of market value and the theory of organizational behavior (Table 3.1).

Table 3.1

Theoretical approaches to assessing business performance


Economic theory

The economic theory of the firm

market value theory

Theory of Organizational Behavior

The purpose of the company

Maximize profits for a specific time period

Maximizing market value

Coordinating the interests of different stakeholder groups



Instrumental, normative model

Decision-oriented, not fully normative

The model of interest matching, descriptive

Basic Performance Drivers

Drivers profit

Drivers cash flow, intangible assets

A combination of elements of the external environment, organizational strategy, internal characteristics of the organization

Marketing type



Cost-oriented marketing

Marketing interaction

In economic theory of the firm is considered the production of one or several products in a competitive environment. The main goal of the company's activity is to maximize profits at a particular time period, and profit is defined as the difference in revenues and the amount of fixed and variable costs. Accordingly, the main factors, or "drivers," profit in this concept is the increase in current receipts (physical volume of sales and product prices), reduction of current costs and investments.

This approach has long been widely used in the activities of modern companies. He found application in marketing, production management, logistics and other disciplines due to the availability of raw data and the ease of measurement. Economic theory of the firm allows you to clearly define and manage the factors of profitability of the company. Criticism of this theory is reduced to the following provisions:

The approach is limited to the decision-making process. For example, it does not take into account the increased risk factor associated with the increased -

income. In addition, there are problems with this behavior, when managers, focusing on short-term performance, seek to reduce current costs to the detriment of future efficiency.

The assumption of rationality is unrealistic. In most cases, profit is not the sole purpose of entrepreneurship. Entrepreneurs and managers understand that for achievement of success it is necessary to fulfill other goals that in many respects contradict the maximization of profit, as they are associated with additional costs (for example, increasing the satisfaction of staff and customers).

This model does not reflect the real activity of most companies. In reality, company managers do not make calculations that determine the best combination of price and sales volumes, but rely on their own intuition, market knowledge and experience.

This approach does not take into account the potential of intangible assets. The approach focuses on improving the efficiency of traditional resources and the return on investment.

The market value theory, which has been further developed in the company's finance theory, appeals to maximize the firm's current value and, in the case of a public offering, the company's shares. Thus, the main goal of the company's activities is to maximize the market or shareholder value. The focus of managers 'attention shifts from the current profitability indicators and the costs of finding long-term sources of increasing the shareholders' income. Signed figures in the struggle for the interests of shareholders - Roberto Goizueta, who worked as general director of Coca-Cola from 1981 until his death in 1997, and Jack Welch, who headed GeneralElecrtric in 1981-2001. Both managers considered the company's main task maximization of shareholder value.

Maximization of the cost of the company's capital is determined by the amount of generated cash flows, their stability, profitability relative to risk, liquidity. Particular attention in the theory of company value is paid to intangible assets, including marketing assets. Marketing assets are based on the interaction of the firm with the external environment. They include relationships with customers, brand assets and strategic relational assets.

In the cost management models in addition to the financial (cash flow and its determinants, financial valuation of intangible assets), a strategic dimension also arises. At the same time, the marketing strategy acts as the basis for creating value, the platform on which growth, profitability and profitability of investments are based. The marketing strategy includes such strategic decisions for the company as the choice of the target market, the formation of the value proposition, branding and communication with the client. The marketing strategy is aimed at creating and maintaining long-term distinctive advantages of the company. Marketing assets also increase shareholder value by increasing and accelerating cash flow, reducing volatility of operations and reducing risk, etc.

Using the principles and tools of cost management allows you to provide a more thorough strategic analysis and choice of market strategy, the ability to plan your own investment attractiveness; flexibility and systemic strategic decisions; constant monitoring of the company's position on the market.

The main criticism of this model boils down to the fact that maximizing the firm's value does not always become a real motivator for managers. Even when the compensation of managers is related to the size of the company's value, in real terms, when developing a strategy and managing current activities, managers take into account a much larger number of factors than the amount of cash flow, risks, timing and duration of cash receipts. In addition, estimates of future earnings, as well as capital costs, are difficult to forecast. The theory of market value is based on the assumption that the firm uses all available information about the market, which does not coincide with reality. In addition, the maximization of firm value, in particular the shareholder value, can not be a significant motivator for the staff.

Theory of Organizational Behavior . unlike the previous two models, does not act as a regulatory one. It states that the formation of the company's policy and the adoption of managerial decisions rarely occurs in conditions of perfect competition and the availability of complete information about the market. The theory of organizational behavior sees the firm as a coalition of groups and individuals, each member of which has its own goals and expectations, which can vary significantly.

This theory is represented by various models, in terms of considering the effectiveness of the organization drivers performance are considered as elements or combinations of elements of the external environment, organizational strategy and internal characteristics of the organization. As these elements are numerous and diverse in their composition, various and related performance indicators are diverse.

Therefore, in the theory of organizational behavior and the marketing of partnerships, there is a significant number of methods for assessing both the factors and performance of the company:

target models , assessing the effectiveness of organizations in terms of the degree of achievement of goals (L. Robbins, I. Nuber, C. Perrow, T. Burns);

system models , assessing the effectiveness of organizations as the ability to use the environment to achieve their goals (E. Yukhtmei, S. Sishor);

models of strategic components that determine the effectiveness of the organization as the ability to ensure internal consistency and the possibility of influencing the external environment (D. Miles, G. Mintzburg);

Participant satisfaction models, examining the effectiveness of the organization in terms of the needs of its participants (C. Barnard, G. Georgiou, P. Killey, D. Rawls, T. Stier);

model) of incremental development, in which efficiency is seen as the organization's ability to solve problems (N. Osnay-Ortega);

a complex efficiency model that considers efficiency as a system of indicators of the state of the internal and external environment of the organization (DS Sink, R. Hall, T. Kono, etc.).

All considered approaches do not exclude, but complement each other. The choice of the model for evaluating the effectiveness of the company's marketing activities is determined by a specific set of characteristics that represent the dominant interests and strategic goals of key business participants, a combination of factors and resources of the company.

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