Question
Asked Nov 7, 2019

How important is it that an organisation formally expresses its purpose? To what extent should it be consistent with Friedman or Kay’s view on the purpose of an organisation.

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Expert Answer

Step 1

Every element in the world should be designed in a way that consists of a meaningful purpose. Likewise every organization should be formed for achieving a particular objective, and that should have a purpose which may be further bifurcated among various stakeholders of the business and those need to be formally expressed, so that both the internal and external stakeholders come to know the company’s objective and how it would become benefitted for them. Please follow the underneath points to understand it in a better way:

  • Purpose from the viewpoint of organization itself: Initially organizations used to believe that the sole purpose should be of profit motive that is increasing of the earning capacity. They believe in the formation of vicious circle, as employees need money to sustain their family, organizations need employees, thus to refrain employees from leaving the job, the organization also needs to earn more. If we go through Maslow’s Need of Hierarchy Theory, the last need refers to ‘Self Actualization Need’, that means, after getting adequate money, the value of money does not play a key role for motivating the employees to make them engaged in work. Then they need motivation through non-financial incentives, which may include recognition, respect, enhancing esteem needs. So, from this viewpoint it is clear that, earning profit should not be the sole purpose of organization.
  • Purpose with respect to customers: Customers are king of any organization. To serve them quality products at minimum price is significant to sustain in this competitive era. So, enhancing quality means, enhancing safety, serving healthy products for the well-being of customers. So another purpose that should be expressed by an organization is the benefit for the customers.
  • Purpose with respect to shareholders: Shareholders are the owner of the organization. They are investing their hard earned money for growth of the organization, so the shareholders also have the right to expect fruitful incentives from the company. Another purpose of the company should be to look after the shareholders betterment.
  • Purpose from the viewpoint of creditors: Without creditors, it is impossible for a company to run business operations on a daily basis. So, company should fulfil their obligation towards creditor as well, so that operational functioning of the business continues.
  • Purpose with respect to society: Corporate social responsibility plays a significant role is describing the purpose of the company for society as a whole. Company cannot sustain in the market, if society creates hindrances. So it cannot ignore the obligation towards society as well.

 

So if we look from the viewpoint of all the stakeholders, there cannot be a single purpose of any organization to serve better. The several purposes should be accumulated together so that company can meet with employees’ satisfaction, customer satisfaction, shareholders satisfaction, investors’ satisfaction, creditors’ satisfaction and satisfaction of society as a whole. The purposes should be formally expressed through any medium to bring those into the notices of stakeholders, so that the overall objective of company gets fulfilled.

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০ ECOYOR RED ZATION ED OCIET ORGAN AREA SVES VAESTOR OYEE OR

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Step 2

Friedman’s view was mainly based on two factors, maximisation of profit and wealth maximization of shareholders.

Kay’s principal was different from Friedman’s philosophy; according to him company should have distinctive capabilities and maximization of all the stakeholders’ wealth, both internal and external. Let us illustrate their views one by one.

Step 3

Friedman’s view:

  • Shareholders money should not be spend for something that has no direct contribution to enhance shareholder’s wealth.
  • Profit maximization should be key criteria but fraud needs to be excluded completely.
  • Director should give em...

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