The paper ' Exploring the Paradigm Wars in Organisation Theory ' is a wonderful example of a Management Case Study. The field of organizational theory provides a variety of approaches essential in understanding organizational designs, structures, and the relationships between organizations and their external environment. In addition, through organizational theory, it becomes easier to understand the behavior of technocrats, stakeholders, and the management within an organization. Furthermore, this approach to understanding operations within organizations also provides an understanding of how organizations can cope with rapid changes in their environment.
This paper will engage in critical analysis of determinist and agency theories in terms of their contributions to the understanding of organizational action. Furthermore, the paper will assess the possibility of reconciling these theories into a universal theory explaining organizational action. Agency theory Agency theory is based on the supposition that the major reasons for the existence of firms in the market are to engage in transaction costs (Fernando, 2009). This theory leads to the development of an understanding that organizations are a series of contracts, which are made with the aim of improving the wellbeing of these organizations in terms of their competitive advantage and market share (Fernando, 2009).
According to this theory, the decisions and actions by the management are executed on behalf of the shareholders. The relationship between the management and the shareholders, according to the agency theory, is the relationship between the principal and the agent. The principal, the shareholders, hires the agent, the management, to perform the responsibilities that the former is unwilling or unable to perform (Evans, 2008). This theory is also based on the assumption that bot the agent and the principal are motivated by self-interest.
This assumption dooms the agency theory to inexorable intrinsic conflict (Brink, 2011). From the theory, if both parties derive their motivations from self-interest then there is a high possibility that the agents will be more likely to develop policies that pursue self-interested objectives hence deviating and even conflicting with the goals and objectives of the principals. The conflict emanates from the assumption that agents are supposed to act on behalf of and pursue the interests of the principals (Fernando, 2009). The process of determining the extent to which the agent does not act or acts in accordance with the interest of the principal, proponent of the agency theory developed the standard of agency loss (Fernando, 2009).
Agency loss implies the difference between the best possible outcome for the principal and the consequences of the actions of the agent (Evans, 2008). For instance, the agency cost can be placed at zero when the actions of the agent are consistent with the interest of the principal (Clegg & Bailey, 2008). However, agency loss increases when the actions of the agent deviate from the interests of the principal.
This means that when the actions of the agents are directed towards the satisfaction of their self-interest, against those of the principals, then the agency loss is placed as high (Clegg & Bailey, 2008). The minimization of the agency loss is possible when two particular statements can be considered as true. The first statement is that the agent and the principal have common interests. This means that the agent and the principal have a common desire towards a specific outcome (Chetty & Saez, 2007).
The second statement is that the principal possesses some knowledge about the consequences of the activities of the agent. This means that the principal understands the extent to which the actions of their agents serve their best interests (Chetty & Saez, 2007). If any of these statements is false, then the agency loss is most probably going to rise. These statements also imply that the principal has the role of monitoring and evaluating the actions that the agents make on their behalf.
The process of evaluating the decisions requires some form of expenditure in the form of agency costs (Brink, 2011). Agency cost entails the intentions of the principal in regulating the behavior of the agent by paying the latter some percentage of the financial resources (Chetty & Saez, 2007). This is aimed at ensuring that the agent does not engage in corruption-related activities that would harm the principal (Chetty & Saez, 2007). The harms, from the agency theory, involve those activities that would deny the principal the opportunity of deriving benefits in the form of profits from the actions and the decisions of the agents (Clegg & Bailey, 2008).
Through agency cost, agency theory presents the notion that it is necessary for the principal to provide the agents with some form of financial compensation as a way of motivating them and ensuring that their actions and decisions are aimed at boosting the economic wellbeing of the principal. This also implies that the agency cost is the financial expenses necessary in the operationalization of an organization (Chetty & Saez, 2007). The level of the agency cost will be effective in determining the effective techniques of governing organizations and the resulting behavior in terms of minimizing conflicts between the management and shareholders (Idowu & Kiymet, 2014).
Furthermore, through the agency costs, it becomes possible to determine the extent to which the management will be engaged in developmental initiatives aimed at improving the reputation and profitability of an organization in accordance with the interests of the shareholders. According to agency theory, in the development of agency relationships, the agent has a moral responsibility towards the principal.
This responsibility cannot be dismissed because the agent acts as an agent of another (Clegg & Bailey, 2008).
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