How Does Business Actually Behave?
“Actually, what happened was that the economic theory assumed one product company for fixing profit maximization purpose. This assumption is not practical. Behavioral theory on the other hand assumes a company that deals in multiple products. ”
Many theorists have propounded the behavioral theory of business. It has done away with the profit maximization objectives assumed by the economic theory.The behavioral theory is of the view that a business does not aim to maximize anything, neither profit, nor sales and nor even utility. Instead of hypothesizing about how the business firm responds to various situations, it considers how any business actually behaves and how it takes decisions in reality.
Actually, what happened was that the economic theory assumed one product company for fixing profit maximization purpose. This assumption is not practical. Behavioral theory on the other hand assumes a company that deals in multiple products. In real situations also, companies deal in more than one product. So, It is realistic to consider a multi product business.
The behavioral theory is not of the view that there is only one ultimate goal of profit making in any business. As per this theory, an organization has many goals such as production goal, inventory goals, sales goals, profit goals, market share goals, etc. There are different people in the organization who are concerned with different goals. All these people are specialized only in their particular task.
The workers are concerned with production goals while inventory goals are the interest of salesmen. People who deal with the sales department are only concerned with the sale of the company and may be completely unacquainted with the other departments of the company.
Top-level managers are connected with market share goals and profit goal is the interest of management, shareholders and creditors. There is perfect harmony among various members of the organization. They pursue different goals for there own interests. They assume that the organization is a combination of conflicting interests.
However, as it is human nature to disagree, disagreements do keep on popping up their ugly face off and on. Such disagreements can only be resolved if the management is competent enough and can influence its workers in a positive way.
In reality however, because the resources of the organization are limited it may not be able to accommodate all the demands of the members, which may be mutually conflicting and incompatible.
Author - DeeKay
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