Chapter 12: Environment and issues of interaction Flashcards
How do organizations interact with their environments?
Organizations interact with their environments by acquiring resources (human resources, technology, materials) from stakeholders to create value and benefiting these stakeholders through primary and secondary value creation.
What are the positive and negative impacts of organizations on their environment?
Organizations positively impact the environment by providing products, services, jobs, and taxes, but negatively impact it unintentionally, e.g., contributing to global warming through production.
What are the environmental spheres that organizations are embedded in?
Organizations are embedded in different environmental spheres such as the economy, society, technology, and nature, each operating under its own rules.
What challenges must companies overcome to survive in a competitive environment?
Companies must address liquidity (unable to meet financial liabilities) and solvency (liabilities exceed assets) problems, which can lead to bankruptcy or require restructuring for survival.
Why is a company’s relationship with its financial backers important?
A company’s relationship with financial backers is crucial for securing liquidity or solvency during tough times, such as through additional loans or capital injections.
What are the five theories of the firm?
The five theories of the firm are:
- Neoclassical Theory
- Transaction Cost Theory
- Resource-Based Theory
- Behavioral Theory
- Customer Value-Based Theory
What does the Neoclassical Theory of firm growth emphasize?
The Neoclassical Theory emphasizes achieving economies of scale in a competitive environment to minimize costs and determine the optimal firm size for cost-effective production.
What does Transaction Cost Theory focus on?
Transaction Cost Theory focuses on comparing external transaction costs with internal coordination costs, determining the scope of a company’s activities based on which ones are more cost-effective to perform in-house versus outsourcing.
What is the main idea behind Resource-Based Theory?
Resource-Based Theory explains a firm’s existence and growth by emphasizing the unique, rare, and hard-to-imitate resources and capabilities that provide competitive advantages.
What does Behavioral Theory explain about company size and existence?
Behavioral Theory explains that companies can survive by maintaining stakeholder cohesion, seeking compromises that balance profit and long-term survival, even if they don’t fully maximize profits.
What is the focus of Customer Value-Based Theory?
Customer Value-Based Theory emphasizes that a company’s existence depends on its ability to generate sufficient customer value, fulfilling customer needs and maintaining market relevance.
How does a company’s optimal size change according to Neoclassical Theory?
A company’s optimal size is determined by its ability to achieve economies of scale, and this size increases with new technologies, such as refrigeration, transportation, and advanced production methods.
Why does Transaction Cost Theory favor internal production over outsourcing in some cases?
Transaction Cost Theory favors internal production when the costs of managing and coordinating external contracts (e.g., complex service contracts) exceed the costs of internal production and control.
How does Resource-Based Theory relate to competition for resources?
Resource-Based Theory highlights that companies with unique and valuable resources can secure competitive advantages, especially in industries where resource access is crucial for success.
How does Behavioral Theory differ from the Neoclassical Theory?
Behavioral Theory emphasizes stakeholder management and maintaining long-term relationships, rather than focusing solely on profit maximization and the “rational” economic behavior proposed by Neoclassical Theory.
What happens to a company that fails to generate customer value according to Customer Value-Based Theory?
If a company fails to generate customer value, its existence is threatened, as it no longer fulfills its primary function and loses relevance in the market.
How does the neoclassical theory explain the production optimum?
The neoclassical theory explains that the optimal size of a firm exists where the marginal cost of production intersects with the average cost per unit produced, which allows the firm to survive in a competitive environment.
How do new technologies affect a firm’s size according to Neoclassical Theory?
New technologies, such as refrigeration and improved transport, enable firms to expand their market reach and thus increase their optimal size, facilitating global market access
How does Behavioral Theory explain the success of a multinational accounting firm during a recession?
Behavioral Theory explains that the accounting firm’s success during a recession is due to strong stakeholder relationships, such as connections with regulatory authorities, client loyalty, and investments in training and professional associations.
What role does customer value play in a company’s survival according to Customer Value-Based Theory?
Customer value is crucial for a company’s survival as it determines whether the company meets the needs of its customers, enabling it to thrive in a competitive market.
How do organizations interact with their environment?
Organizations interact with their environment by tapping into resources (e.g., labor, capital, knowledge, and demand for products) and contributing to the environment through their products and services.
What is the SGMM’s view on the relationship between organizations and their environment?
The SGMM examines the reciprocal relationship, where organizations rely on resources from their environment and also contribute value through their primary and secondary value creation.
How do organizations define their environment?
Organizations define their environment based on the resources they need, such as technology, skilled employees, or capital. These resources evolve into a specific configuration over time.
What does the dual focus of management entail?
Management has a dual focus on the organization and the environment, aiming to create sustainable value by addressing both internal and external demands and expectations.
