Company as a System: Structure, Subsystems, and Theories
The Company as a System
A system is a set of interrelated elements working towards a common goal, forming a whole or subsystem within a larger system.
System Characteristics
- Common goal
- Homeostasis (balance)
- Equifinality (different paths to goals)
- Synergy (whole exceeds parts)
- Feedback (contributions and results)
Company as a System
The company is a human and dynamic artificial system (Kast and Rosenzweig, 1987), composed of several subsystems:
- Goals and values
- Technical
- Psychosocial
- Structural
- Administrative
Company Subsystems
Production Decisions
- Choosing the right production system
- Efficient IT utilization
- Product design and process decisions
- Production capacity decisions
- Factory size and location
- Plant layout and machinery
- Applying mathematical methods in production planning
- Production system control
- Technological knowledge application and innovation
- Product quality control
- Inventory management
Marketing Decisions
Marketing efficiently manages exchange relations between company and consumer by analyzing, identifying, creating, developing, and stimulating demand.
- Market analysis
- Customer segmentation
- Demand forecasting
- Developing and implementing marketing strategies
Human Resources Decisions
- HR planning
- Recruitment and selection
- Job assignments
- Compensation and incentives
- Employee motivation
- Labor relations
- Training and development
- Knowledge creation and application
Financial Decisions
Finding optimal ways to obtain and invest financial resources, involving companies, investors, and markets.
- Investment decisions
- Funding decisions (own vs. external resources)
Managerial Decisions
Acquiring, allocating, and coordinating productive resources efficiently.
- Planning: Establishing future actions
- Organization: Designing a stable structure with defined roles and communication
- Control: Monitoring objective compliance
The Economics of Transaction Costs
Costs related to market transactions, including information, trading, and warranty costs. These arise from bounded rationality and opportunistic behavior. The amount depends on asset specificity, uncertainty, complexity, and transaction frequency. Consequences include the emergence of companies to eliminate these costs and implications for company growth.
Agency Theory
Problems of Agency
- Pre-contract: Negotiation problems and adverse selection
- Post-contract: Moral hazard and agent opportunism
Agency Costs
- Monitoring costs
- Warranty costs
- Residual loss
Two Main Trends
- Positive agency theory: How organizational forms influence enterprise objective efficiency (entrepreneurial, company-owned, cooperative)
- Principal-agent theory: How the principal designs reward structures for the agent (observable behavior, signal-based reward, result-based reward)
- Fixed salary (principal bears risk)
- Variable remuneration (agent bears risk)
- Fixed + variable pay
- Stock options