behavioural theory of the firm an alternative to the traditional, profit-maximizing THEORY OF THE FIRM, which stresses the nature of large companies as complex organizations beset by problems of goal conflict and communications. The behavioural theory examines the inherent conflict between the goals of individuals and subgroups within the organization and suggests that organizational objectives grow out of the interaction among these individuals and subgroups.
Cyert and March, who helped develop the behavioural theory, suggested five major goals that are relevant to companies’ sales, output and pricing strategies:
(a) production goal;
(b) inventory goal;
(c) sales goal;
(d) market-share goal;
(e) profit goal.
Each of these goals will be the primary concern of certain managers in the organization, and these managers will press their particular goals. The goals become the subject of ‘bargaining’ among managers, and such overall goals as do emerge will be compromises, often stated as satisfactory-level targets (see SATISFACTORY THEORY). This intergroup conflict, however, rarely threatens the organization’s survival because ORGANIZATIONAL SLACK provides a pool of emergency resources that permit managers to meet their goals when the economic environment becomes hostile.
In order to achieve rational decision-making, it would be necessary to eradicate inconsistencies between goals and resolve conflicts between objectives. Traditional economic theory suggests that rationality can be achieved, painting a picture of ‘ECONOMIC MAN’, able to specify his objectives and take actions consistent with their achievement. By contrast, the behavioural theory argues that goals are imperfectly rationalized so that new goals are not always consistent with existing policies; and that goals are stated in the form of aspiration-level targets rather than maximizing goals, targets being raised or lowered in the light of experience. Consequently, not all objectives will receive attention at the same time and objectives will change with experience.
The behavioural theory also focuses attention on internal communications problems in large organizations, pointing out that decision-making is distributed throughout the firm rather than concentrated at the apex of the organization pyramid. This happens because lower-level managers do not just execute the orders of those at the top; they exercise initiative:
(a) in detailed planning within broad limits set by a top management;
(b) in summarizing information to be passed upwards as a basis for decision-making by their superiors. These communications problems make it difficult for senior managers to impose their objectives upon the organization.
Although the behavioural theory of the firm is somewhat descriptive, lacking the determinism necessary to generate tes table predictions, it has offered many useful insights into the objectives of large companies. See also MANAGERIAL THEORIES OF THE FIRM, PROFIT MAXIMIZATION, FIRM OBJECTIVES, PRINCIPAL-AGENT THEORY.
below-the-line promotion see ABOVE-THE-LINE PROMOTION.
benchmarking the process of measuring aspects of a firm’s performance and comparing this measured performance with that of other firms. Benchmarking can help a firm to discover where its performance is deficient and can suggest means of improving competitive performance.
benefit drivers elements of a firm’s operations that individually and collectively create ‘benefits’ for consumers who buy the firm’s product, e.g. quality, design, accessories, performance in use, guarantees and warranties. The ability to offer a product that is ‘perceived’ by customers to offer superior value to them is an important consideration where PRODUCT DIFFERENTIATION is the key basis of the firm’s COMPETITIVE ADVANTAGE over rival suppliers. See VALUE-CREATED MODEL.
Benefits Agency see DEPARTMENT FOR WORK AND PENSIONS.
benefits-received principle of taxation the principle that those who benefit most from government-supplied goods and services should pay the TAXES that finance them. The problem with this proposition, apart from the obvious difficulties of quantifying the benefits received by individuals, particularly as regards the provision of items such as national defence, fire service, etc., is that it cannot be reconciled with the wider responsibilities accepted by government in providing social services and welfare benefits, i.e. it would make no sense at all to tax an unemployed man in order to finance his unemployment pay. See ABILITY-TO-PAY PRINCIPLE OF TAXATION, REDISTRIBUTION-OF-INCOME PRINCIPLE OF TAXATION.
Bertrand duopoly see DUOPOLY.
bid 1 an offer by one company to purchase all or the majority of the SHARES of another company as a means of effecting a TAKEOVER. The bid price offered by the predator for the voting shares in the victim company must generally exceed the current market price of those shares, the difference being a premium that the predator must pay for control of the company. On occasions, however, the market price of the shares may subsequently rise to exceed the initial bid price where investors either feel that the bid price undervalues the company or where investors anticipate, for example, the possibility of a second party making a higher bid. The offer price could be paid solely in cash, or in a mix of cash and shares in the acquirer’s own company, or solely in terms of the acquirer’s shares (called a paper bid). In order to finance a takeover bid, a predator company may raise loans. See TAKEOVER BID (leveraged bid). 2 an indication of willingness to purchase an item that is for sale at the prevailing selling price. This may occur at auction when many purchasers bid for items on sale, the final sale going to the purchaser offering the highest price unless a predetermined reserve price has been set that was not reached. See AUCTION.
bid price the price at which a dealer in a FINANCIAL SECURITY (such as a STOCK or SHARE), FOREIGN CURRENCY or COMMODITY (tin, wheat, etc.) is prepared to buy a security, currency or commodity. Such dealers usually cite two prices to potential customers, the smaller bid price and a higher ‘offer price’ or ‘ask price’ at which they are prepared to sell a security, etc. The difference between the bid and offer price (referred to as the ‘spread’) represents the dealer’s profit margin on the transaction. See MARKET MAKER.
big bang see STOCK EXCHANGE.
bilateral flows movements of money between sectors of the economy to match opposite flows of goods and services. For example, income in return for factor inputs supplied and consumption expenditure in payment for goods and services consumed. Bilateral flows make it possible to ignore flows of goods and services in the economy and to concentrate on money movements in the CIRCULAR FLOW OF NATIONAL INCOME MODEL.
bilateral monopoly a market situation comprising one seller (like MONOPOLY) and one buyer (like MONOPSONY).
bilateral oligopoly a market situation with a significant degree of seller concentration (like OLIGOPOLY) and a significant degree of buyer concentration (like OLIGOPSONY). See COUNTERVAILING POWER.
bilateral trade the trade between two countries. Bilateral trade is a part of INTERNATIONAL TRADE, which is multilateral in scope. See MULTILATERAL TRADE, COUNTERTRADE.
bill 1 a financial instrument, such as a BILL OF EXCHANGE and TREASURY BILL, that is issued by a firm or government as a means of borrowing money.
2 the colloquial term used to describe an INVOICE (a request for payment for products or services received).
3 a draft of a particular piece of legislation that forms the basis of an Act of Parliament, such as the Fair Trading Act 1973.
bill-discounting interest rate the INTEREST RATE at which the BANK OF ENGLAND is prepared to lend money to the DISCOUNT HOUSES. This rate is fixed by reference to the ‘official’ rate of interest set by the MONETARY POLICY COMMITTEE of the Bank of England.
bill