This blog is for all students in Corporate Governance and Accountability
Tuesday 9 September 2014
Before starting...Discussing the objective of the firm
Before starting the course of Corporate Governance, I would be extremely grateful if you could indicate what is, according to you, the objective (the aim) of companies like Microsoft, Apple, MacDonalds
Profit is surely one of the objectives of a private interests firm, but there could also be some objectives that go beyond the profit. In this case, even when profit is not the main goal of an organization, it could be a mean to reach other objectives.
In my opinion, 'to grow' is the ultimate goal for a company. Each firm may seek growth for several reasons (sell the business in a later stage, philantropy, etc.). Profits are not necessarely related to the growth of a business as they can also be fully retained by shareholders without further investments on the company's activity.
The main objective for such companies like Apple, Microsoft is not just to gain profit, but it is something more - like to creat a value for customers, to propose a good quality and world known brand taking a highest position in the market. Steve Jobs told one day :" I want to make a ring in the Universe", so the main idea is to do something geat, something useful for people for long term period.
In my opinion the objective of such firms (and of firms in general terms) is threefold: - mazimize the value for the SHAREHOLDER (profits--> capital gains + dividends. They play a foundamental role because without them the firm would not even exist) - mazimize the value for the EMPLOYEES ( If employees are not satisfied they work in the wrong way. That's why companies should work and invest on their motivation. That's actually what the leading firms do.) - maximize the value for the CUSTOMERS (this should be done not only in the short term- probably the easiest one- but also in the long term. For example, long term customer satisfaction is the only tool firms have to build reputation).
The objective of the firm is to balance these three parts. None of them should be forgotten. Their balance, in fact, is the only way the firm has to survive, to grow and to create value for the entire community (social purpose).
Surely, one of the main objectives of these companies is to grow and to gain profit and market share. Nevertheless, their purposes go behind that: being well-known companies they aim to create value for customers, stakeholders and shareholders in order to meet their needs and wants. In such a way, they are able to gain competitive advantages in the market and to maintain a favorable position in it.
Of course the maximization of the shares' value is one of the main concerns of any corporation. However, I think it is not the main firm's objective, since a company should be seen as a system of different actors with very different interests. For this reason, I believe the firm's objective should be the value creation in the long period, achieved balancing the shareholders' satisfaction with the satisfaction of all the other actors involved in the company's activities (customers, employees, istitutions etc..).
The main objective for such companies is to gain profit and create value for customers, in order to build their reputation and to have much influence in the market.
Given the high quality of products/services, this possibly implies them to be taken as benchmark, with future advantages for the companies, not only in terms of profit.
As far as I am concerned, firms' main objective is contained in their mission statement. It can be of a huge variety: from achieving profits to "building a better world" or "satisfying the new society's needs". As a consequence, corporate objective cannot be classified into general categories. People who want to find it should look at firms' websites, in order to have a precise view on it.
In my view the main objective of a relevant firm should essentially consists of increasing the monetary value of its assets, as investors expect high return on the risk incurred. However this reasoning cannot be properly considered as an objective with respect of what has been covered during the first day lecture. It would be therefore correct if monetary value creation should be regarded as a tool rather than a goal. In fact the satisfaction of human needs is to be regarded as the main objective and its fulfillment must be pursued through value creation. To sum up, as lesson learned today, human needs satisfaction goes together the concept of value creation as the former help to strenghten the first one.
Profit, of course, is the objective of all the companies. But for great companies such as Microsoft and Apple, they care not only about how much they earn, but also about the consumer loyalty. I think they might be more interested in leading the industry rather than making profits.
I think that the main objective for a firm is value adding and customer satisfaction. Because only with loyal customers can a firm survives for a long period. Of course profit is very important but without loyal customers and satisfying them all the time, profit can never be achieved.
In my opinion, the main objectives of the firms are: - survival - profit maximization - sales maximization - social responsibility - improved efficiency
In my opinion, for these big companies the aim is not only satisfy needs, but maintain and possibly increase their market share reinforcing the shared vision of their brand in the mind of customers and shareholders.
IMHO I think that money is important (and probably the most) when a company is small or large. But after a certain level this is not more the first objective. In this case we are talking about three "monsters". On Dec 31st,2013 Apple fixed a record of 171 Billions on the income statement (http://investor.apple.com/results.cfm) and this is 6 times the amount of money involved in the 2011 "Riforma Salva Italia" ("Fornero's Lacrime e Sangue" is only a piece of that reform). Apple manages an incredible amount of information and they know more or less half of what we do during a day. The other half is done by Microsoft. What I want to say is that after a level, money leaves place to power. This is a status quo matter, a condition they have to maintain. Do you believe in California are politicians to decide or those guys live in Sylicon Valley? They pay a huge amount of taxes in that State, and if they decide to leave, they would bring both taxes modules and their PC in the new State. When you are so big, you are not worried about 170 or 160 billions $ of revenues (and 10 billions are an huge amount) but you want to maintain your leadership and influence. There are many bigger firms than Apple and Microsoft (in terms of revenues) but I really think they won't change their status with Exxon Mobile and so on. The same could happen with Mc Donald. They sell hamburger and fries but they're also the leader in the market, and their brand is one of the most common in the world. So here the real value is not more revenues, but remain the best know and reputable in that market, and their are trying in doing so changing the menu with and healthy face.
On my view the main purpose of a firm is to survive as long as possible. But if we look at the larger multinational firm as Mcdonald or Apple, the aim change. In effect for these firms is primary have a dominant position in the market and increase the market share. However these things can not happen without satisfying the shareholder.
I think all my colleagues have right views and good points, but I especially agree with Asya Bagdasarova. I think that the objectives of these big companies are not only to survive and to mantain profitability (so making sure that revenues stay ahead of the costs of doing business) but also to grow, changing management if it is necessary, developing marketing sector to improve market shares and to reinforce the core value to face as well as possible other competitive forces. Therefore for companies like Microsoft and Apple "the aim of the firm" could be a complex idea.
In the first years of life the firm is dependent from the environment, its aim is survival. As the firm grows it become increasingly powerful and influent in its einvironment and has the possibility to shape it. Of course large firms has wider purposes than mere surviving, that's why we always talck about corporate social responsibility. I think that the real objective of large corporations is to prosper and to live in equilibrium in their environment. I use the word "equilibrium" because it sounds fear, responsible, as large corporation should be, reminding the active role the firm has in preserving and creating value in the environment. For large corporation there is no profit without such an equilibrium.
I agree with my colleagues and I believe the first objective of a firm is to survive in the environment, while the second objective is of course to make profits. It is true that companies have to make profits because this is the reason why they exist, but it is fundamental to understand what are the conditions needed to reach this goal: indeed companies reach this objective creating value for customers and for the society, and they do so satisfying needs and wants and through CSR, fulfilling demand for products and services that cannot be effectively produced by individuals.
different firms have different objectives may be consider as : profit maximisation sales revenues maximisation sales volume maximisation market share shareholders maximisation ethical goals such as those associated with the environment and carbon emissions however firms such as Apple , Microsoft and MacDonald aim to satisfy the customer through services or product
in my view, the most important aim for such big companies is to create new needs, and satisfy them through their innovative tools and products. This will be the key to create a long lasting sense of satisfaction for consumers, and even if they never asked for that certain product in the past now they have achieved an additional wealth on their life thanks to the innovative strategies of these companies. These additional wealth, obviously will be reflected in terms of market share, and profit for firms.
Among the objectives (aims) of organizations there are: - survival in the dynamic environment; - value creation: firms have to maximize profit but at the same time they have to satisfy customer needs to increase customer satisfaction and build long-term relationships with them which will increase value; -to increase market share; -to satisfy shareholders interests.
I agree with the affirmation that different firms have different objectives, in particular if we take in consideration different kind of firm and organizational structure. I mean that, when we focus on businesses characterized for the majority by direct involvment of family members within the management fo the business, the aim of the firm will be obviously aligned with the interests and objectives of the owner (according to the completìxity of the structure and the fragmentation of the owners). Such objectives are for example increase value for each member of the organization, maximize profits for owners but also fulfill traditions, culture and moral behaviors throughout the firm. I mean that the aim is not only profit but also to mantain family's members lifestyle or increase it thanks to business performance. if we focus on firms like Apple, which has already reached a dominant position in the market, it's important to be aligned with the market dynamism (rapidly change in technology, higher custumization...) in order to be competitive on market or in any way to mantain the competitive advantage reached. Profit maximization,value creation and increase in market share are the most important objectives.
According to me a firm DOESN'T HAVE OBJECTIVES itself. Human beings have objectives, firms don't. The "firm's objectives" are just the reflections of the decision makers' objectives (most of the times the shareholder, but sometimes even external entities, like financial institutions, can have quite a big decision power in firms not directly owned).
That said, i think that the big variety of possible organizational structures of the firm, and so the huge differences among the people governing the firm, bring to a very complex objective definition process for the firm, resulting in a fusion of all the different (and sometimes contrasting) objectives of the decision makers.
In conclusion a firm could not exist in a medium-long term if costs are costantly less than revenues, so this economic equilibrium is probably the prevalent minimum objective among the others, in most of the cases.
In my opinion the aim of well-known companies like McDonalds, Microsoft and Apple is maintain their positioning in the market thanks to the creation of renewed value for stakeholders and shareholders and in particular create and maintain confidence in customers.
I think it is depend on specific case. In many cases the value creation for the business entity itself and different stakeholder is the same value, but in other cases a value based on the effort. For example, in case of Microsoft, the value creation for the business entity itself and different stakeholder is the same value an they are to satisfy customer needs. But in the case of McDonald it a value based on the effort.
For sure, the primary object of a firm is to satisfy human needs as we've told many times,but one example pointed out is Apple,so a question could arise: "this main object is just needs' satisfaction or also needs'creation?" . Taking in example Apple and the next iPhone 6/6 Plus.. is it a real need to have a phone able to measure the height of buildings,to connect everywhere and with everyone or has Apple CREATED this human need to be always fashionable with the last version of the most expensive phone?
Good point ! ... I think it depends. Apple is a perfect example of a firm that creates needs from the first I-pod till I-pads and I-phones. A neverending list of products that We don't really need to use but We decide to buy for a sort of " status-need" , that the firm itself has created, and the power of Apple is so big that many followers are not awere about it. But what about the other companies?
Federica, I have got your point, but in my vision the creation and the satisfaction of human needs (talking about customers needs) represent the other side of the coin. Where if human(customers) needs is head, the tail is represented by owner and shareholders needs, where their need and want is,in the majority of cases, to make higher profits. So the marketing role about creating a human need, in bringing you to think that you need an Apple or anything else become crucial, obviously a famous brand will find it easier, if they provide "status-need" it will be two times easier. The creation of needs is one of the way that have to be followed in order to satisfy ownership and shareholders needs. And about other comapanies? Well they have to continue their struggle for survival Andrea Formica
It's a situation in which companies bring the customers to be always "hungry", little by little,product by product..WE want always more from products and this is because THEM brought US to this point of never-ending needs,this need to possess always the last fashion object ! And all of this bring to profits, brand awareness and so on as Andrea told.
In order to add concrete proofs supporting that, why do not we consider technological components while we come into a shop buying an Apple product? We are ready to consider RAM capacity, Android version and the powerful of microprocessors buying other products of the same category (Samsung, LG, Toshiba and so on) whereas we say just "I want it black or white, 13 or 15 inches wide" when we have a look on an I-Phone or Mac laptop. Apple has simply achieved what other competitors are still looking for: overcoming a mere "technological need" coming into people lifestyle necessities and everyday attitudes. That is the key of its success, even if the importance of its value creation is subject to positive and negative opinions.
I totally agree with Federica Sabato. In my view Apple created other human needs which now bacame PRIMARY needs for the majority. As Lorenzo said, people strongly believes in apple brand that they don't care about technological components. In fact in Apple company, DESIGNERS run the show and for this reason it keeps people at jobs they're the best at. Moreover, Apple concentrated in all about the costumer experience. Apple knows that their customers love the experience of doing business with Apple. Which lesson can you take from company like Apple? Do you think that it could get better your life?
I agree with Federica. Nowadays, many big companies that have acquired a dominant position in the market during the last years tend to attract their customer creating needs and wants. I mean, some companies produce goods that do not satisfy primary needs, but they produce goods that satisfy superficial needs, like in the case of the iPhone 6. And people is likely to buy them with out being aware that it is not a product that satisfies a need, but that is a product that is creating a need.
In my opinion, the main objective of any firm, both the ones which offer goods and those offering services, is to create value internally and externally. This means that any firm should certainly concentrate on its economic and financial equilibrium, in the short and in the long run, but at the same time it should also be socially and environmentally sustainable when doing that.
I agree with Federica in some ways. But I think that Apple also made iPhone a primary need of some people. Those who stand in line for hours or days to get the new iphone feel that they cant live without it. Apple creates a need and satisfies it.
I agree with you Erika. Maybe we can consider this the last phase in success achievement for many firms. With Apple we see the overturning of need's hierarchy, in particular many people mix up phisiological with esteem needs and this is a great power for a company!
You are right! In addition, Apple causes dependance. Im not talking about being addicted to iPhone, but about the fact that, as far as I know, Apple products can be used only with an Apple software. Now, this is a great strategy in my opinion. By satisfying a basic need with a product which induces other needs,the company reached success. I wonder how far this can go.
I think that create needs in this case is only a compless process in order to "satisfy a need that you haven't before". Don't forget that Apple have created need at the beginning of its business, nowadays it has a lot of funs with needs to be satisfied
From my opinion, the main objective of a firm is to create profits. At this process, firms like Apple and other companies also create value for customers to satisfy their needs and wants. There is a circle, factors in this circle affect each other, firms produce products for customers and customers purchase these products, companies earn profits from this process.
The main objective of most companies is maximizing profit. It means making sure the revenue stay ahead of the cost. In the case of big companies like Microsoft, Apple, MacDonalds, they attempts to do this by ensuring they have respectable reputation for excellence in their whole ranges of products and thus maintain/increase their proportion of the market share in their industry. To do this, they need to get customer satisfaction, productivity... They are the leaders of their industries. Therefore, their objects also involve the development in technology and customer insight (not satisfy the current needs of customer but also create customer needs).
I'm agree with Erika, iPhone 6 satisfies primary needs and wants. I think that Apple with a certain products operates in a Blue Ocean market. For example for some customers, Samsung is a strict competitor of Apple, but for others is not a competitor, even if Samsung puts on the market product with software characteristics better than Apple. iPhone 6, for some people, is a Status Quo.
I complitely agree with you Lucio, Apple is in a real blue ocean situation. When a firm find itself in such a position, so that its products are almast considered as a MUST-HAVE in customers life ,on the one hand it has an ADVANTAGE because people tend not to focalize on technical details and quality of the products( they give them for granted) but more on less relevant aspects ,like for ex , on the external colour of the i phone and on the status and consideration they can get having it. On the other hand such giant firms suffer the BIGGER risk of having a high fixed standard to meet with their usual customers. Try to immagine that you buy a mac and the following week you find out that it has a relevant defect , for ex the internal system does not work well, you will surely get agrier that if the same situation would have happened with a toshiba laptop and it's not only for a matter of higher price but for a sense of TRUST you developed towards the brand.
Someone once said: Steve Jobs have not created the Iphone or the Ipod, Steve Jobs have created the Apple. Their success is based on a systemic view that goes over the possession of a single phone; as Lucio said it is a status symbol, as Ralph Lauren in clothing
In my opinion, the objective of the firm depend on the target of firm's develop stage in the firm life cycle . For example, when firm was born the objective of firm is survival in the market. During the development stage, the target of firm is maximizing their own profits.....
In my opinion of course the main objectives are to survive, to grow and to gain profits. But also it is important what the customers think about the company itself and the company's goods and services. For that reason the customer satisfaction is a focal point. So understanding customers needs, satisfying them in the best way, creating with them a long term relationship, touching and making them excited about your policy and your brand, can be the aim of the firm.
In my view, a firm have several difference objectives at the time and the objectives of firm may changed by firm lifecycle or/and the trend of the market.
In case of Apple, currently their own objectives are maybe: product leadership, maximizing profits, differrences product, technology leadership, .....
In my opinion the main aim of these companies is to satisfy customers' needs. They indeed try to produce what customers demand in order to achieve other objectives like profits or growth in the market, that can be seen as a consequences of a strategy oriented toward customers. If a company is not able to give to its clients what they ask for, it will never be able to last in time.
Giorgio Trinchero i think the aim is to make profit through customer value proposition, focusing on customer satisfaction, services to customer and quality products. What do you think guys?
I think that the goal of the company differs from period to period. Like everybody said, the first goals are the survival, then the growth and the achievement of high results. But I think that those results can not be reached if there isn't a good organizational structure, good relationships among workers and departments and, most of all, good products/services. Once the firm has reached a great market share, it tries to become a leader, creating a strong brand image and being remembered and recognized by people.
I think the majority of comments you submitted are related with general aims that firms tend to have : take for ex. survival ,it's a crucial objective of the period in which the firm is still in its infancy and has no reputation and brand image jet but a precondition that should be considered also by well known firms, as "out-of-the-blue" changes in the market or in customer needs can make a firm loose profits very fast ( just see the case of NOKIA which lose a huge part of its customers because it didn't react immediately, changing its strategy and production processes, to adapt to the new "smartphone era"). Other main aims that you listed are growth, brand awareness, product differentiation and so on : they are clearly goals that firms try to achieve at the beginning of their career path. However we are talking here , as andrea di schiavi and few others highlighted, of GIANTS , of MYTHS ,not simply of general firms. According to me these 3 firms are in the MOST DIFFICULT period of their life cycle, on the ground that their main aim is STRUGGLING against being continously on the border line between sustainable growth ( producing new products and keep customers attention) and maturity ( stay on the acquired position and spoil past succes till it lasts).They have to KEEP THEIR ACQUIRED REPUTATION ALIVE, they have to mantain the kind of service they have granted till nowadays. This is one of the most difficult goals. Its like in real life : THE STUDENT who is known has having always had high marks has BIGGER expectations to satisfy and the LEAST ERROR is amplified and hardly ever forgiven.
Personally, I supposed that profitability is essentially the primary objective that these types of leading companies in the industry and sector are pursing as the baseline and grounding to be going concern. Financial performance and indicator are main criteria to assess a company for decision making for both internal and external stakeholder. Differentiating from those non-for-profit firms. Beyond that, dominant technological advancement and revolution are also featured as their mission to be completed, for instance, Apple and Microsoft are influentially leaders in Smart Phone and PC software.
More broadly, such companies are evolving their dimension into human, Social and Environmental respects along with the societal development whereas some of them are subject to be compliance purpose.
I think that the objective of each firm is the profitability. The problem is related to the means that the firm chooses to achieve this aim. Sometimes companies, thinking only at profits, forget that there are several ways to get at the same point and some of them are more proper and effective than the others. This is the reason why, in my opinion, we should never divide the scope from the means used to achieve it. Indeed there is a huge difference between a firm that pursues profitability through the identification (and creation) of its customers' needs, showing interest in them and one that instead only tries to maximize its profit, cutting on quality or whatever possibile activity.
Giacomo Saragò23 September 2014 14:40 said: "According to me a firm DOESN'T HAVE OBJECTIVES itself. Human beings have objectives, firms don't. The "firm's objectives" are just the reflections of the decision makers' objectives".
In my opinion, the link between firms' and decision makers' objectives can widen and shrink according to the kind of company we are talking about. Partnerships are not separate legal entities, that is why their objectives can better coincide with the ones of who owns them. On the other hand, corporations are separate legal entities. Thus, there is a separation between the company as itself and its owners (their responsibilities). In order to provide arguments to my thesis, let us make an example. A corporation's objective may be creating a better world or building a better society through its products (as mentioned in some mission statement). Nevertheless, the board of governors have no constraints in approving higher stock dividends which might mean using more polluting, cheaper chemical materials to let profits rise (then contradicting company's mission statement). Having said that, owners are responsible with their whole own assets in a partnership whereas their responisibilities limit themselves just to their money invested in corporations. As far as I'm concerned, it consists in a big difference when approving actions that may differ to the objectives which are stated in a mission statement.
In line with the question,Initially, I figured that firms should have their own objectives commonly not limited to one but several levels and do serve their different stakeholder who have an interest with. Practically, all substance over forms of business and even Management were featured human element. Accordingly, we unable to be explicitly exasperating the human beings and legal entities.
Moreover, "reflecting decision maker's objective" can not commonly precise to align, In certain cases, the objective of the Management who acted as an agent role making decision may differ from those dominant shareholders for their own interest and even damage the majority and minority as well as a company overall for long run.
In my opinion it would be a mistake to assume that the firm's and people's behaviour derive from the same decision making process. In fact, even though boards are made of people, they comprise several different views on which shall be the firm's objectives. Furthermore, from a merely juridical point of view, there is a clear difference between physical, people, and juridical entities, firms. Also in case of a concentrated ownership the firm's objective doesn't necessarily coincide with the owner's objective, as we have seen in the discussion we had in class on Parmalat.
I don't completely agree with the expression "The firm's objectives are just the reflections of the decision makers' objectives". I would say that a firm has always an objective, and this objective should be fully aligned with the interests of all the stakeholders. If managers take the strategic decisions within a firm, it does not mean that the firm's objective is the reflection of managers' objectives. In fact, managers are only external professionists to which are delegated responsibilities by shareholders. So, the objective should be aligned not only with the interests of the company's managerial bodies, but also with the interests of owners, as well as other parties that are directly involved in the firm's business and that provide considerable contributes to the creation of value and business performance.
I understand your point guys, and i agree with the fact that the firm's objectives should be separated from the shareholder's ones, as it can brings to several situations in wich the firm destroys value, rather than creating it.
But my consideration is also about how the directors of the firm can shape the firm's objectives. Let's take as virtuous examples the german companies, in wich half of the board of directors represents the employees. This leads to a different decision making process with the generation of more sustainable firm's objectives, oriented towards the value creation for all the stakeholders. What do you think about?
I think that the firm should have a clear objective that should reflects (as much as possible) the interests of all the stakeholders. The process of value creation is affected by the behaviour of all relevant stakeholders, such as customers, employees, suppliers and investors. For this reason, I think that also managers, if we are talking about a corporation, can affect the process of value creation. It means that the role of management is crucial for the achievement of the objective and for sure managers' behaviour can influence it. It is the task of the Board of Directors (that should reflect primarily the interests of shareholders) to control that the decision making process of Managers will not condition the objective.
In my opinion a firm should have its own objectives, that are those established by the entrepreneur(s) at the time of the articles of incorporation, and the shareholder(s) should carefully select those managers who share them. Then, with the passing of time it is possible that individual interests, both of the owners and of the managers, may prevail the pursue of the ultimate interest of the company. The board of directors has a crucial role in order to avoid this situation. In fact, from my point of view, it needs to be well represented by all the relevant individuals who play an important role in the survival of the firm. For this reason the german solution, to include a so relevant percentage of workers in the board fo directors , is completely embraceable.
I do not fully agree with this "perspective" suggested by Giacomo for the following reason: although it is true that the objectives of the firms reflect somehow the the decision making of the main participants, it must be acknowledged that firms, hopefully, are expected to live beyond the natural life of human beings and to perpetrate their existence in the future. So, as a matter of fact, the quest for survival and development across time (decades, centuries and so on..) strictly requires companies to set up their fundamental objectives to accomplish. Only the accomplishment of such goals fosters innovation and, above all, the perpetration of this entity in time and space dimension.
I agrre with Giacomo Saragò, the firm's objectives are just the reflections of the decision makers' objectives. Human beings have objectives, firms don't. Therefore a firm doesn't have objectives itself, and firm's objectives may come from their shareholders.
I totally agree with Michele Massacesi. And moreover I think that the decision making process is different for companies and individual: people sometimes are impulsives but a company must follow some steps before taking a decision. There is always a study to deal with and sometimes the best solution appears only after having take in consideration all the alternatives. So, I think that is not necessarily true that the firm represents the owner's ideas or objective.
I don't completely agree with the expression "A firm doesn't have objectives itself. Human beings have objectives ". According to the company and corporate culture, all firms come into world with a specific objective. Each firm has a unique DNA. Of course human beings have objectives but if you think that the manager of a firm changes and with him also the manager's objective, should the firm change the objective?! I would say: No. I don't believe that the firm objective is just the reflection of human beings objectives; to the contrary, I believe that business principles and firm beliefs well-established within the company, influence business actions and all the stakeholders should have and follow the same objective of the firm. Therefore, in general, human beings contribute to the achievement of firms' objectives.
I think that Giacomo Saragò in its statement is committing an error. Companies exist only because they are the tool used to reach a particular COMMON goal, that otherwise couldn't be reached. So if a firm has one or more objectives they are the result sum of different and multiple interest, from shareholders, stakeholders, employees and so on. A firm that do not have an object, a goal, do not have reason to exist.
It depends on what do you mean with "firm". For sure it is not a thinking entity, but it's also a system and it "act" according to the collective perfomance of its participants, decision maker but also employees
In response to the question of Giacomo I think that this definitions are important. There are two conditions to be included in the governance system: - the subject (individual or institution) must critically contribute to the firm’s survival: its lack of contribution can cause the failure of the firm. It’s not only an issue concerning money, but also competencies. - the subject’s economy survives if the firm continues to survive, so the firm is critical for the survival of the subject.
I think that the objective of the firm depends on the specific situation the company is living in. For example, in the first months or years from its constitution, a firm cannot think to make huge profits or to grow, but the main target should be to survive in order to be competitive in the future. An other important situation that we can consider is when the business world is affected by huge changes, such as technological improvements, that make obsolete the current way of running a business. In this last situation the objective for the enterpise has necessarly to be the innovation of itself, in order to create value in the future and satisfy the shareholders in terms of profits.
I think the objective of the firm is the maximization of shareholders' wealth, always keeping an eye toward customers. Often, this doesn't happen. For example, thinking about controversial industries, their only interest is the maximization of profits. These industries do not care about consumers, because they sell something people do not need. They just satisfy vices, not needs.
In my opinion, a firm's objective is not unique, and it is changeable during the entire lifecycle of the firm: maybe at the beginning could be only the survival, then the economic growth, and in some phases the objective could be the volume sales maximization. But, at last, all these different objectives, referred to different phases and different perspectives within the firm, aim to the big scope: value creation. In fact, when we talk about Value Creation, we are talking about the value useful for stakeholders, shareholders and firm itself. Aiming finally at value creation, in my opinion, drives to all of the intermediate objectives linked especially in the short-term.
i agree with marco fiasco , the object of the firm depends on the current situation for it , also we can't ignore the life stages of the firm , which mainly define the current objective for the firm , such as communal stage , the main goals in this stage is developing identity and overcome conflict
I tihink the objective of the firm is refer to the period of time to achieve the results of its administrative activities or results. It can be divided in accordance with the timing of planned long-term goals with strategic (over 10 years), medium-term objectives (3-5 years), short-term goals (one year) and performance goals (quarterly or monthly)
The main goal of both the fundamental basis for planning the content, but also the development of the plan, the scientific program of work is mainly to predict the future development of the right to select a good goal orientation, effective use of existing resources (human, financial and material resources), to obtain more good economic and social benefits.
The objective of a firm is surely linked to the profit.This is due to the entrepreneurial risk. In my opinion the interest of the firm is primary the profit ( firm oriented) and then shareholders wealth also if, especially in this time, the firm has to consider stakeholders need ( externalities) like communities, state,and future generations.
Human beings have interests! Companies are a way to reach some of them.
ReplyDeleteProfit
ReplyDeleteI have got your name!
DeleteProfits, in order to be more attractive in the market place
ReplyDeleteProfit is surely one of the objectives of a private interests firm, but there could also be some objectives that go beyond the profit. In this case, even when profit is not the main goal of an organization, it could be a mean to reach other objectives.
ReplyDeleteTo increase the market share, to obtain enough clients in order to gain profit, to propose the appropriate value to the target audience ..
ReplyDeleteIn my opinion, 'to grow' is the ultimate goal for a company. Each firm may seek growth for several reasons (sell the business in a later stage, philantropy, etc.). Profits are not necessarely related to the growth of a business as they can also be fully retained by shareholders without further investments on the company's activity.
ReplyDeleteThe main objective for such companies like Apple, Microsoft is not just to gain profit, but it is something more - like to creat a value for customers, to propose a good quality and world known brand taking a highest position in the market. Steve Jobs told one day :" I want to make a ring in the Universe", so the main idea is to do something geat, something useful for people for long term period.
ReplyDeleteIn my opinion the objective of such firms (and of firms in general terms) is threefold:
ReplyDelete- mazimize the value for the SHAREHOLDER (profits--> capital gains + dividends. They play a foundamental role because without them the firm would not even exist)
- mazimize the value for the EMPLOYEES ( If employees are not satisfied they work in the wrong way. That's why companies should work and invest on their motivation. That's actually what the leading firms do.)
- maximize the value for the CUSTOMERS (this should be done not only in the short term- probably the easiest one- but also in the long term. For example, long term customer satisfaction is the only tool firms have to build reputation).
The objective of the firm is to balance these three parts. None of them should be forgotten. Their balance, in fact, is the only way the firm has to survive, to grow and to create value for the entire community (social purpose).
Silvia Cieri
Surely, one of the main objectives of these companies is to grow and to gain profit and market share. Nevertheless, their purposes go behind that: being well-known companies they aim to create value for customers, stakeholders and shareholders in order to meet their needs and wants. In such a way, they are able to gain competitive advantages in the market and to maintain a favorable position in it.
ReplyDeleteOf course the maximization of the shares' value is one of the main concerns of any corporation. However, I think it is not the main firm's objective, since a company should be seen as a system of different actors with very different interests. For this reason, I believe the firm's objective should be the value creation in the long period, achieved balancing the shareholders' satisfaction with the satisfaction of all the other actors involved in the company's activities (customers, employees, istitutions etc..).
ReplyDeleteThe main objective for such companies is to gain profit and create value for customers, in order to build their reputation and to have much influence in the market.
ReplyDeleteGiven the high quality of products/services, this possibly implies them to be taken as benchmark, with future advantages for the companies, not only in terms of profit.
As far as I am concerned, firms' main objective is contained in their mission statement. It can be of a huge variety: from achieving profits to "building a better world" or "satisfying the new society's needs". As a consequence, corporate objective cannot be classified into general categories. People who want to find it should look at firms' websites, in order to have a precise view on it.
ReplyDeleteIn my view the main objective of a relevant firm should essentially consists of increasing the monetary value of its assets, as investors expect high return on the risk incurred.
ReplyDeleteHowever this reasoning cannot be properly considered as an objective with respect of what has been covered during the first day lecture. It would be therefore correct if monetary value creation should be regarded as a tool rather than a goal. In fact the satisfaction of human needs is to be regarded as the main objective and its fulfillment must be pursued through value creation. To sum up, as lesson learned today, human needs satisfaction goes together the concept of value creation as the former help to strenghten the first one.
Profit, of course, is the objective of all the companies. But for great companies such as Microsoft and Apple, they care not only about how much they earn, but also about the consumer loyalty. I think they might be more interested in leading the industry rather than making profits.
ReplyDeleteI think that the main objective for a firm is value adding and customer satisfaction. Because only with loyal customers can a firm survives for a long period.
ReplyDeleteOf course profit is very important but without loyal customers and satisfying them all the time, profit can never be achieved.
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ReplyDeleteIn my opinion, the main objectives of the firms are:
ReplyDelete- survival
- profit maximization
- sales maximization
- social responsibility
- improved efficiency
In my opinion, for these big companies the aim is not only satisfy needs, but maintain and possibly increase their market share reinforcing the shared vision of their brand in the mind of customers and shareholders.
ReplyDeleteIMHO I think that money is important (and probably the most) when a company is small or large. But after a certain level this is not more the first objective. In this case we are talking about three "monsters".
ReplyDeleteOn Dec 31st,2013 Apple fixed a record of 171 Billions on the income statement (http://investor.apple.com/results.cfm) and this is 6 times the amount of money involved in the 2011 "Riforma Salva Italia" ("Fornero's Lacrime e Sangue" is only a piece of that reform). Apple manages an incredible amount of information and they know more or less half of what we do during a day. The other half is done by Microsoft. What I want to say is that after a level, money leaves place to power.
This is a status quo matter, a condition they have to maintain. Do you believe in California are politicians to decide or those guys live in Sylicon Valley? They pay a huge amount of taxes in that State, and if they decide to leave, they would bring both taxes modules and their PC in the new State.
When you are so big, you are not worried about 170 or 160 billions $ of revenues (and 10 billions are an huge amount) but you want to maintain your leadership and influence. There are many bigger firms than Apple and Microsoft (in terms of revenues) but I really think they won't change their status with Exxon Mobile and so on.
The same could happen with Mc Donald. They sell hamburger and fries but they're also the leader in the market, and their brand is one of the most common in the world. So here the real value is not more revenues, but remain the best know and reputable in that market, and their are trying in doing so changing the menu with and healthy face.
On my view the main purpose of a firm is to survive as long as possible. But if we look at the larger multinational firm as Mcdonald or Apple, the aim change. In effect for these firms is primary have a dominant position in the market and increase the market share. However these things can not happen without satisfying the shareholder.
ReplyDeleteI think all my colleagues have right views and good points, but I especially agree with Asya Bagdasarova.
ReplyDeleteI think that the objectives of these big companies are not only to survive and to mantain profitability (so making sure that revenues stay ahead of the costs of doing business) but also to grow, changing management if it is necessary, developing marketing sector to improve market shares and to reinforce the core value to face as well as possible other competitive forces.
Therefore for companies like Microsoft and Apple "the aim of the firm" could be a complex idea.
In the first years of life the firm is dependent from the environment, its aim is survival. As the firm grows it become increasingly powerful and influent in its einvironment and has the possibility to shape it. Of course large firms has wider purposes than mere surviving, that's why we always talck about corporate social responsibility. I think that the real objective of large corporations is to prosper and to live in equilibrium in their environment. I use the word "equilibrium" because it sounds fear, responsible, as large corporation should be, reminding the active role the firm has in preserving and creating value in the environment. For large corporation there is no profit without such an equilibrium.
ReplyDeleteVery interesting debate...Good guys
ReplyDeleteI agree with my colleagues and I believe the first objective of a firm is to survive in the environment, while the second objective is of course to make profits. It is true that companies have to make profits because this is the reason why they exist, but it is fundamental to understand what are the conditions needed to reach this goal: indeed companies reach this objective creating value for customers and for the society, and they do so satisfying needs and wants and through CSR, fulfilling demand for products and services that cannot be effectively produced by individuals.
ReplyDeleteFrancesco Massacesi
different firms have different objectives may be consider as :
ReplyDeleteprofit maximisation
sales revenues maximisation
sales volume maximisation
market share
shareholders maximisation
ethical goals such as those associated with the environment and carbon emissions
however firms such as Apple , Microsoft and MacDonald aim to satisfy the customer through services or product
in my view, the most important aim for such big companies is to create new needs, and satisfy them through their innovative tools and products. This will be the key to create a long lasting sense of satisfaction for consumers, and even if they never asked for that certain product in the past now they have achieved an additional wealth on their life thanks to the innovative strategies of these companies. These additional wealth, obviously will be reflected in terms of market share, and profit for firms.
ReplyDeleteCristina Parrella
Among the objectives (aims) of organizations there are:
ReplyDelete- survival in the dynamic environment;
- value creation: firms have to maximize profit but at the same time they have to satisfy customer needs to increase customer satisfaction and build long-term relationships with them which will increase value;
-to increase market share;
-to satisfy shareholders interests.
Chiara Palone
I agree with the affirmation that different firms have different objectives, in particular if we take in consideration different kind of firm and organizational structure.
ReplyDeleteI mean that, when we focus on businesses characterized for the majority by direct involvment of family members within the management fo the business, the aim of the firm will be obviously aligned with the interests and objectives of the owner (according to the completìxity of the structure and the fragmentation of the owners). Such objectives are for example increase value for each member of the organization, maximize profits for owners but also fulfill traditions, culture and moral behaviors throughout the firm. I mean that the aim is not only profit but also to mantain family's members lifestyle or increase it thanks to business performance.
if we focus on firms like Apple, which has already reached a dominant position in the market, it's important to be aligned with the market dynamism (rapidly change in technology, higher custumization...) in order to be competitive on market or in any way to mantain the competitive advantage reached.
Profit maximization,value creation and increase in market share are the most important objectives.
Cristina Quaranta
According to me a firm DOESN'T HAVE OBJECTIVES itself. Human beings have objectives, firms don't. The "firm's objectives" are just the reflections of the decision makers' objectives (most of the times the shareholder, but sometimes even external entities, like financial institutions, can have quite a big decision power in firms not directly owned).
ReplyDeleteThat said, i think that the big variety of possible organizational structures of the firm, and so the huge differences among the people governing the firm, bring to a very complex objective definition process for the firm, resulting in a fusion of all the different (and sometimes contrasting) objectives of the decision makers.
In conclusion a firm could not exist in a medium-long term if costs are costantly less than revenues, so this economic equilibrium is probably the prevalent minimum objective among the others, in most of the cases.
In my opinion the aim of well-known companies like McDonalds, Microsoft and Apple is maintain their positioning in the market thanks to the creation of renewed value for stakeholders and shareholders and in particular create and maintain confidence in customers.
ReplyDeletehi guys I had problems to download study materials, did it happen you too?
ReplyDeleteI had this problem too! Today at the end of the class, the professor, kinly, put part of the material on our pendrives :)
DeleteValue creation for the business entity itself and different stakeholder... Do we mean the same value or a value based on the effort?
ReplyDeleteI think it is depend on specific case. In many cases the value creation for the business entity itself and different stakeholder is the same value, but in other cases a value based on the effort.
DeleteFor example, in case of Microsoft, the value creation for the business entity itself and different stakeholder is the same value an they are to satisfy customer needs.
But in the case of McDonald it a value based on the effort.
For sure, the primary object of a firm is to satisfy human needs as we've told many times,but one example pointed out is Apple,so a question could arise: "this main object is just needs' satisfaction or also needs'creation?" . Taking in example Apple and the next iPhone 6/6 Plus.. is it a real need to have a phone able to measure the height of buildings,to connect everywhere and with everyone or has Apple CREATED this human need to be always fashionable with the last version of the most expensive phone?
ReplyDeleteGood point ! ... I think it depends. Apple is a perfect example of a firm that creates needs from the first I-pod till I-pads and I-phones. A neverending list of products that We don't really need to use but We decide to buy for a sort of " status-need" , that the firm itself has created, and the power of Apple is so big that many followers are not awere about it. But what about the other companies?
DeleteFederica, I have got your point, but in my vision the creation and the satisfaction of human needs (talking about customers needs) represent the other side of the coin. Where if human(customers) needs is head, the tail is represented by owner and shareholders needs, where their need and want is,in the majority of cases, to make higher profits. So the marketing role about creating a human need, in bringing you to think that you need an Apple or anything else become crucial, obviously a famous brand will find it easier, if they provide "status-need" it will be two times easier. The creation of needs is one of the way that have to be followed in order to satisfy ownership and shareholders needs. And about other comapanies? Well they have to continue their struggle for survival
DeleteAndrea Formica
It's a situation in which companies bring the customers to be always "hungry", little by little,product by product..WE want always more from products and this is because THEM brought US to this point of never-ending needs,this need to possess always the last fashion object ! And all of this bring to profits, brand awareness and so on as Andrea told.
DeleteIn order to add concrete proofs supporting that, why do not we consider technological components while we come into a shop buying an Apple product?
DeleteWe are ready to consider RAM capacity, Android version and the powerful of microprocessors buying other products of the same category (Samsung, LG, Toshiba and so on) whereas we say just "I want it black or white, 13 or 15 inches wide" when we have a look on an I-Phone or Mac laptop.
Apple has simply achieved what other competitors are still looking for: overcoming a mere "technological need" coming into people lifestyle necessities and everyday attitudes. That is the key of its success, even if the importance of its value creation is subject to positive and negative opinions.
I totally agree with Federica Sabato. In my view Apple created other human needs which now bacame PRIMARY needs for the majority.
DeleteAs Lorenzo said, people strongly believes in apple brand that they don't care about technological components. In fact in Apple company, DESIGNERS run the show and for this reason it keeps people at jobs they're the best at. Moreover, Apple concentrated in all about the costumer experience. Apple knows that their customers love the experience of doing business with Apple.
Which lesson can you take from company like Apple? Do you think that it could get better your life?
good point, but i believe that is a marketing issue rather than a corporate problem
DeleteI agree with Federica. Nowadays, many big companies that have acquired a dominant position in the market during the last years tend to attract their customer creating needs and wants. I mean, some companies produce goods that do not satisfy primary needs, but they produce goods that satisfy superficial needs, like in the case of the iPhone 6. And people is likely to buy them with out being aware that it is not a product that satisfies a need, but that is a product that is creating a need.
ReplyDeleteIn my opinion, the main objective of any firm, both the ones which offer goods and those offering services, is to create value internally and externally. This means that any firm should certainly concentrate on its economic and financial equilibrium, in the short and in the long run, but at the same time it should also be socially and environmentally sustainable when doing that.
ReplyDeleteI agree with Federica in some ways. But I think that Apple also made iPhone a primary need of some people. Those who stand in line for hours or days to get the new iphone feel that they cant live without it. Apple creates a need and satisfies it.
ReplyDeleteI agree with you Erika. Maybe we can consider this the last phase in success achievement for many firms. With Apple we see the overturning of need's hierarchy, in particular many people mix up phisiological with esteem needs and this is a great power for a company!
DeleteYou are right! In addition, Apple causes dependance. Im not talking about being addicted to iPhone, but about the fact that, as far as I know, Apple products can be used only with an Apple software. Now, this is a great strategy in my opinion. By satisfying a basic need with a product which induces other needs,the company reached success. I wonder how far this can go.
DeleteI think that create needs in this case is only a compless process in order to "satisfy a need that you haven't before". Don't forget that Apple have created need at the beginning of its business, nowadays it has a lot of funs with needs to be satisfied
DeleteFrom my opinion, the main objective of a firm is to create profits. At this process, firms like Apple and other companies also create value for customers to satisfy their needs and wants. There is a circle, factors in this circle affect each other, firms produce products for customers and customers purchase these products, companies earn profits from this process.
ReplyDeleteIn my opinion
DeleteThe main objective of most companies is maximizing profit. It means making sure the revenue stay ahead of the cost. In the case of big companies like Microsoft, Apple, MacDonalds, they attempts to do this by ensuring they have respectable reputation for excellence in their whole ranges of products and thus maintain/increase their proportion of the market share in their industry. To do this, they need to get customer satisfaction, productivity...
ReplyDeleteThey are the leaders of their industries. Therefore, their objects also involve the development in technology and customer insight (not satisfy the current needs of customer but also create customer needs).
I'm agree with Erika, iPhone 6 satisfies primary needs and wants. I think that Apple with a certain products operates in a Blue Ocean market. For example for some customers, Samsung is a strict competitor of Apple, but for others is not a competitor, even if Samsung puts on the market product with software characteristics better than Apple. iPhone 6, for some people, is a Status Quo.
ReplyDeleteLucio Trapani
*STATUS SYMBOL, sorry for the mistake.
DeleteI complitely agree with you Lucio, Apple is in a real blue ocean situation. When a firm find itself in such a position, so that its products are almast considered as a MUST-HAVE in customers life ,on the one hand it has an ADVANTAGE because people tend not to focalize on technical details and quality of the products( they give them for granted) but more on less relevant aspects ,like for ex , on the external colour of the i phone and on the status and consideration they can get having it. On the other hand such giant firms suffer the BIGGER risk of having a high fixed standard to meet with their usual customers. Try to immagine that you buy a mac and the following week you find out that it has a relevant defect , for ex the internal system does not work well, you will surely get agrier that if the same situation would have happened with a toshiba laptop and it's not only for a matter of higher price but for a sense of TRUST you developed towards the brand.
DeleteGood point Lucio!!!!! A status symbol!
DeleteSomeone once said: Steve Jobs have not created the Iphone or the Ipod, Steve Jobs have created the Apple. Their success is based on a systemic view that goes over the possession of a single phone; as Lucio said it is a status symbol, as Ralph Lauren in clothing
DeleteThe Apple label has drive our discussion from corporate in to marketing
DeleteIn my opinion, the objective of the firm depend on the target of firm's develop stage in the firm life cycle . For example, when firm was born the objective of firm is survival in the market. During the development stage, the target of firm is maximizing their own profits.....
ReplyDeleteIn my opinion of course the main objectives are to survive, to grow and to gain profits. But also it is important what the customers think about the company itself and the company's goods and services. For that reason the customer satisfaction is a focal point. So understanding customers needs, satisfying them in the best way, creating with them a long term relationship, touching and making them excited about your policy and your brand, can be the aim of the firm.
ReplyDeleteIn my view, a firm have several difference objectives at the time and the objectives of firm may changed by firm lifecycle or/and the trend of the market.
ReplyDeleteIn case of Apple, currently their own objectives are maybe: product leadership, maximizing profits, differrences product, technology leadership, .....
In my opinion the main aim of these companies is to satisfy customers' needs. They indeed try to produce what customers demand in order to achieve other objectives like profits or growth in the market, that can be seen as a consequences of a strategy oriented toward customers. If a company is not able to give to its clients what they ask for, it will never be able to last in time.
ReplyDeleteGiorgio Trinchero
ReplyDeletei think the aim is to make profit through customer value proposition, focusing on customer satisfaction, services to customer and quality products. What do you think guys?
I think that the goal of the company differs from period to period.
ReplyDeleteLike everybody said, the first goals are the survival, then the growth and the achievement of high results.
But I think that those results can not be reached if there isn't a good organizational structure, good relationships among workers and departments and, most of all, good products/services.
Once the firm has reached a great market share, it tries to become a leader, creating a strong brand image and being remembered and recognized by people.
I think the majority of comments you submitted are related with general aims that firms tend to have : take for ex. survival ,it's a crucial objective of the period in which the firm is still in its infancy and has no reputation and brand image jet but a precondition that should be considered also by well known firms, as "out-of-the-blue" changes in the market or in customer needs can make a firm loose profits very fast ( just see the case of NOKIA which lose a huge part of its customers because it didn't react immediately, changing its strategy and production processes, to adapt to the new "smartphone era"). Other main aims that you listed are growth, brand awareness, product differentiation and so on : they are clearly goals that firms try to achieve at the beginning of their career path. However we are talking here , as andrea di schiavi and few others highlighted, of GIANTS , of MYTHS ,not simply of general firms. According to me these 3 firms are in the MOST DIFFICULT period of their life cycle, on the ground that their main aim is STRUGGLING against being continously on the border line between sustainable growth ( producing new products and keep customers attention) and maturity ( stay on the acquired position and spoil past succes till it lasts).They have to KEEP THEIR ACQUIRED REPUTATION ALIVE, they have to mantain the kind of service they have granted till nowadays. This is one of the most difficult goals. Its like in real life : THE STUDENT who is known has having always had high marks has BIGGER expectations to satisfy and the LEAST ERROR is amplified and hardly ever forgiven.
ReplyDeletePersonally, I supposed that profitability is essentially the primary objective that these types of leading companies in the industry and sector are pursing as the baseline and grounding to be going concern. Financial performance and indicator are main criteria to assess a company for decision making for both internal and external stakeholder. Differentiating from those non-for-profit firms. Beyond that, dominant technological advancement and revolution are also featured as their mission to be completed, for instance, Apple and Microsoft are influentially leaders in Smart Phone and PC software.
ReplyDeleteMore broadly, such companies are evolving their dimension into human, Social and Environmental respects along with the societal development whereas some of them are subject to be compliance purpose.
I think that the objective of each firm is the profitability. The problem is related to the means that the firm chooses to achieve this aim. Sometimes companies, thinking only at profits, forget that there are several ways to get at the same point and some of them are more proper and effective than the others. This is the reason why, in my opinion, we should never divide the scope from the means used to achieve it. Indeed there is a huge difference between a firm that pursues profitability through the identification (and creation) of its customers' needs, showing interest in them and one that instead only tries to maximize its profit, cutting on quality or whatever possibile activity.
ReplyDeleteGiacomo Saragò23 September 2014 14:40 said:
ReplyDelete"According to me a firm DOESN'T HAVE OBJECTIVES itself. Human beings have objectives, firms don't. The "firm's objectives" are just the reflections of the decision makers' objectives".
What do you think? Do you agree with him?
In my opinion, the link between firms' and decision makers' objectives can widen and shrink according to the kind of company we are talking about. Partnerships are not separate legal entities, that is why their objectives can better coincide with the ones of who owns them. On the other hand, corporations are separate legal entities. Thus, there is a separation between the company as itself and its owners (their responsibilities).
DeleteIn order to provide arguments to my thesis, let us make an example. A corporation's objective may be creating a better world or building a better society through its products (as mentioned in some mission statement). Nevertheless, the board of governors have no constraints in approving higher stock dividends which might mean using more polluting, cheaper chemical materials to let profits rise (then contradicting company's mission statement).
Having said that, owners are responsible with their whole own assets in a partnership whereas their responisibilities limit themselves just to their money invested in corporations. As far as I'm concerned, it consists in a big difference when approving actions that may differ to the objectives which are stated in a mission statement.
In line with the question,Initially, I figured that firms should have their own objectives commonly not limited to one but several levels and do serve their different stakeholder who have an interest with. Practically, all substance over forms of business and even Management were featured human element. Accordingly, we unable to be explicitly exasperating the human beings and legal entities.
DeleteMoreover, "reflecting decision maker's objective" can not commonly precise to align, In certain cases, the objective of the Management who acted as an agent role making decision may differ from those dominant shareholders for their own interest and even damage the majority and minority as well as a company overall for long run.
In my opinion it would be a mistake to assume that the firm's and people's behaviour derive from the same decision making process. In fact, even though boards are made of people, they comprise several different views on which shall be the firm's objectives. Furthermore, from a merely juridical point of view, there is a clear difference between physical, people, and juridical entities, firms.
DeleteAlso in case of a concentrated ownership the firm's objective doesn't necessarily coincide with the owner's objective, as we have seen in the discussion we had in class on Parmalat.
I don't completely agree with the expression "The firm's objectives are just the reflections of the decision makers' objectives". I would say that a firm has always an objective, and this objective should be fully aligned with the interests of all the stakeholders.
DeleteIf managers take the strategic decisions within a firm, it does not mean that the firm's objective is the reflection of managers' objectives. In fact, managers are only external professionists to which are delegated responsibilities by shareholders. So, the objective should be aligned not only with the interests of the company's managerial bodies, but also with the interests of owners, as well as other parties that are directly involved in the firm's business and that provide considerable contributes to the creation of value and business performance.
I understand your point guys, and i agree with the fact that the firm's objectives should be separated from the shareholder's ones, as it can brings to several situations in wich the firm destroys value, rather than creating it.
DeleteBut my consideration is also about how the directors of the firm can shape the firm's objectives. Let's take as virtuous examples the german companies, in wich half of the board of directors represents the employees. This leads to a different decision making process with the generation of more sustainable firm's objectives, oriented towards the value creation for all the stakeholders. What do you think about?
I think that the firm should have a clear objective that should reflects (as much as possible) the interests of all the stakeholders. The process of value creation is affected by the behaviour of all relevant stakeholders, such as customers, employees, suppliers and investors. For this reason, I think that also managers, if we are talking about a corporation, can affect the process of value creation. It means that the role of management is crucial for the achievement of the objective and for sure managers' behaviour can influence it. It is the task of the Board of Directors (that should reflect primarily the interests of shareholders) to control that the decision making process of Managers will not condition the objective.
DeleteIn my opinion a firm should have its own objectives, that are those established by the entrepreneur(s) at the time of the articles of incorporation, and the shareholder(s) should carefully select those managers who share them. Then, with the passing of time it is possible that individual interests, both of the owners and of the managers, may prevail the pursue of the ultimate interest of the company. The board of directors has a crucial role in order to avoid this situation. In fact, from my point of view, it needs to be well represented by all the relevant individuals who play an important role in the survival of the firm. For this reason the german solution, to include a so relevant percentage of workers in the board fo directors , is completely embraceable.
DeleteI do not fully agree with this "perspective" suggested by Giacomo for the following reason: although it is true that the objectives of the firms reflect somehow the the decision making of the main participants, it must be acknowledged that firms, hopefully, are expected to live beyond the natural life of human beings and to perpetrate their existence in the future. So, as a matter of fact, the quest for survival and development across time (decades, centuries and so on..) strictly requires companies to set up their fundamental objectives to accomplish. Only the accomplishment of such goals fosters innovation and, above all, the perpetration of this entity in time and space dimension.
DeleteI agrre with Giacomo Saragò, the firm's objectives are just the reflections of the decision makers' objectives. Human beings have objectives, firms don't. Therefore a firm doesn't have objectives itself, and firm's objectives may come from their shareholders.
DeleteI totally agree with Michele Massacesi.
DeleteAnd moreover I think that the decision making process is different for companies and individual: people sometimes are impulsives but a company must follow some steps before taking a decision.
There is always a study to deal with and sometimes the best solution appears only after having take in consideration all the alternatives.
So, I think that is not necessarily true that the firm represents the owner's ideas or objective.
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DeleteI don't completely agree with the expression "A firm doesn't have objectives itself. Human beings have objectives ".
DeleteAccording to the company and corporate culture, all firms come into world with a specific objective. Each firm has a unique DNA.
Of course human beings have objectives but if you think that the manager of a firm changes and with him also the manager's objective, should the firm change the objective?!
I would say: No. I don't believe that the firm objective is just the reflection of human beings objectives; to the contrary, I believe that business principles and firm beliefs well-established within the company, influence business actions and all the stakeholders should have and follow the same objective of the firm. Therefore, in general, human beings contribute to the achievement of firms' objectives.
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DeleteI think that Giacomo Saragò in its statement is committing an error. Companies exist only because they are the tool used to reach a particular COMMON goal, that otherwise couldn't be reached. So if a firm has one or more objectives they are the result sum of different and multiple interest, from shareholders, stakeholders, employees and so on. A firm that do not have an object, a goal, do not have reason to exist.
DeleteIt depends on what do you mean with "firm". For sure it is not a thinking entity, but it's also a system and it "act" according to the collective perfomance of its participants, decision maker but also employees
DeleteIn response to the question of Giacomo I think that this definitions are important. There are two conditions to be included in the governance system:
ReplyDelete- the subject (individual or institution) must critically contribute to the firm’s survival: its lack of contribution can cause the failure of the firm. It’s not only an issue concerning money, but also competencies.
- the subject’s economy survives if the firm continues to survive, so the firm is critical for the survival of the subject.
Lucio Trapani
I think that the objective of the firm depends on the specific situation the company is living in. For example, in the first months or years from its constitution, a firm cannot think to make huge profits or to grow, but the main target should be to survive in order to be competitive in the future. An other important situation that we can consider is when the business world is affected by huge changes, such as technological improvements, that make obsolete the current way of running a business. In this last situation the objective for the enterpise has necessarly to be the innovation of itself, in order to create value in the future and satisfy the shareholders in terms of profits.
ReplyDeleteI think the objective of the firm is the maximization of shareholders' wealth, always keeping an eye toward customers. Often, this doesn't happen. For example, thinking about controversial industries, their only interest is the maximization of profits. These industries do not care about consumers, because they sell something people do not need. They just satisfy vices, not needs.
ReplyDeleteIn my opinion, a firm's objective is not unique, and it is changeable during the entire lifecycle of the firm: maybe at the beginning could be only the survival, then the economic growth, and in some phases the objective could be the volume sales maximization.
ReplyDeleteBut, at last, all these different objectives, referred to different phases and different perspectives within the firm, aim to the big scope: value creation. In fact, when we talk about Value Creation, we are talking about the value useful for stakeholders, shareholders and firm itself. Aiming finally at value creation, in my opinion, drives to all of the intermediate objectives linked especially in the short-term.
Luca Straccamore 0207972
i agree with marco fiasco , the object of the firm depends on the current situation for it , also we can't ignore the life stages of the firm , which mainly define the current objective for the firm , such as communal stage , the main goals in this stage is developing identity and overcome conflict
ReplyDeleteI tihink the objective of the firm is refer to the period of time to achieve the results of its administrative activities or results. It can be divided in accordance with the timing of planned long-term goals with strategic (over 10 years), medium-term objectives (3-5 years), short-term goals (one year) and performance goals (quarterly or monthly)
ReplyDeleteThe main goal of both the fundamental basis for planning the content, but also the development of the plan, the scientific program of work is mainly to predict the future development of the right to select a good goal orientation, effective use of existing resources (human, financial and material resources), to obtain more good economic and social benefits.
The objective of a firm is surely linked to the profit.This is due to the entrepreneurial risk. In my opinion the interest of the firm is primary the profit ( firm oriented) and then shareholders wealth also if, especially in this time, the firm has to consider stakeholders need ( externalities) like communities, state,and future generations.
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