Let’s Understand Managerial Theory of Business
“To put it in plain terms, the managerial theory means that managers are taught to maximize sales and not profit. The profit part is a natural outcome of the increase in sales of any company.”
Managerial theory is a very prominent theory in business. In fact the profit maximization objective has been popularized much by this theory. This theory stressed on sales maximization, utility maximization and on the maximization of the balanced rate of growth.Sales maximization is one of the important managerial functions. To put it in plain terms, it means that managers are taught to maximize sales and not profit. The profit part is a natural outcome of the increase in sales of any company.
A manager’s good will and prestige depends upon his capacity to increase sales of the firm. It dose not mean that profit is altogether ignored. Without reasonable profits the shareholders cannot be paid dividends, which is essential for sales maximization.
The sales maximization objective is essential because the earnings of top managers are linked with sales and not with profit. The banks and other financial institutions advance loans on the basis of sales. The concerns with large sales volumes get priority in lending.
The employees get better wages and other allowances if sales are increasing. The reduction in sales can lead to retrenchment also. The increase in sale brings prestige to the managers. Managers prefer steady performance with satisfactory results.
From the utility maximization point of view, managers are motivated by their self-interest and they maximize their own utility function. The utility maximization object of managers is possible in corporate sector only where ownership and management are separate. It permits the managers to pursue their own self-interests, subject only to their being able to maintain effective control over the firm.
The utility factor is linked with the number of persons a manager can command. The greater the number of the staff under the control of the manager, the greater the status he enjoys. The prestige of the manager is linked to the power wielded by him.
The utility derived by a manager also depends upon the magnitude of discretionary investment expenditure. This expenditure is the amount of resources, which the manager can spend according to his discretion. The command of a manager over the resources of the firm gives him a sense of fulfillment and he strives even more to achieve better results.
Author - DeeKay
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