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Theories of Business Firms Understanding the Profit making behaviours of Firms

Theories of Business Firms Understanding the Profit making behaviours of Firms. Neoclassical Behavioural Agency Transaction Cost Value Chain Porter’s 5 forces of competition. Explains what shapes the systematic structures of firms in responding to their external environments.

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Theories of Business Firms Understanding the Profit making behaviours of Firms

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  1. Theories of Business FirmsUnderstanding the Profit making behaviours of Firms • Neoclassical • Behavioural • Agency • Transaction Cost • Value Chain • Porter’s 5 forces of competition Explains what shapes the systematic structures of firms in responding to their external environments Systematic structures Cause drivers Why? Impact drivers Why? P/L = Revenue - Costs Customer, Performance, Scope & ScaleValue Add

  2. Neoclassical Theory Produce to sell to outside the firm Capital Maximised Profit SpecialisedProductions Inputs Outputs Products/Services People Every decision is equal Info has little value add The Perfect & Closed Systematic Efficiency  Perfect Competition Environment Supply Demand Little use for IT systems

  3. Behavioural Theory • People are irrational decision makers because of • Varying different info access • Varying decision making skills • Varying time constrains Satisfactory People Resources Profit Behavioral Theory Every person contributes to Profit HRM Budget Involvement of employees Diversity of employee’s motivations Management of employees’ performance Info has value add

  4. Neoclassical Vs behavioural Theory QB4) What is the fundamental difference between the neoclassical view and the behavioural view of firms?

  5. Agency Theory Full of People Issues Therefore costs because of Clashes in interests, personality, authority.... Maximum Satisfactory People Resources Profit AgencyTheory People Agents ….but people are different and have different interests, motivation drivers, social status regards, profit expectations, etc Every decision is not equal Decision support HRM Budget Info has value add

  6. Transaction Cost Theory Capital People Resources Profit Maximum Least for Most Product/Services Transaction Cost Theory Market Value Outputs Cost Efficacy Driven + Cost drivers Efficiency measures  productivity & budget Value drivers Market value measures  efficiency, effectiveness Info has value add

  7. Porter’s Value Chain Managing & coordinating a firm’s activities to create Value Adds that contributes to higher Profits Info has value add More complex micro information needs

  8. Porter’s 5 Competitive Forces(Competitive Advantage of Firms) Info has value add More complex micro & macro information needs Basis for formulating Cost leadership strategies Value Differentiation strategies Niche – mix of the above

  9. Porter’s Diamond Theory(Competitive Advantage of Nations) Info has value add More complex micro & macro information needs

  10. Resource Based View of Firms Short term Inputs Long term Competitive Advantage • Resources & Capabilities • Skilled People • Facilities • Equipments • Materials • Methods of Work • Design IP • etc Goods Production Inputs Outputs Service Provisioning Products & Services

  11. Core Competencies What are the characteristics of resources that enable competitive advantage? Core Competencies Sustainable Value • Resources & Capabilities • Skilled People • Facilities • Equipments • Materials • Methods of Work • Design IP • etc Unique Difficult to imitate Goods Production Inputs Outputs Service Provisioning Products & Services

  12. Core Competencies Core Competencies Sustainable Value • Resources & Capabilities • Skilled People • Facilities • Equipments • Materials • Methods of Work • Design IP • etc Unique Difficult to imitate Goods Production Inputs Outputs Service Provisioning Products & Services Can an IS by itself provide a business with sustainable competitive advantage?

  13. Core Competencies Core Competencies Sustainable Value • Resources & Capabilities • Skilled People • Facilities • Equipments • Materials • Methods of Work • Design IP • etc Unique Difficult to imitate Goods Production Inputs Outputs Service Provisioning Products & Services According to RBVF theory, whenever identical firms populate an industry, any one firm CANNOT enjoy sustained advantage? Do you agree?

  14. Class work Static  batch Dynamic  real-time

  15. Strategy A strategy is a set of coordinated actions intended to: Give a firm business advantage in one or more locations Achieve some underlying enterprise goals that shape this business advantage Realised strategies = Goals Achievements Planned Strategies Intended / Deliberate Unrealised strategies = Goals Achievement Gaps Accidental Strategies Realised emergent Achievements Emergent

  16. Strategy Perspectives • Structure – Control Frameworks • Risks • Enhancers Also different information capture & reporting perspectives • Contents – The Plans • SWOT patterns & leverage actions • Context – The Reasons • Business /social positions

  17. Strategies @ Different Organisational Perspectives Locations CorporateStrategies Business Unit Strategies Market / Product Strategies Locations Locations IT systems need to provide information at different organisational to product level perspectives & by different locations and therefore their different currencies, legal compliance reporting systems, etc

  18. Types of International Strategies • IT systems need to cater for these different strategies’ information needs, eg: • Strategy tracking systems • Market intelligence systems • ERP analytics • CRM analytics

  19. Assignment Case StudyWhat challenges does Brian Smith faces in supporting Modemeter’s new business directions? Modmeters– North American firm globalising in 3 continents CEO – John Johnson CIO Brian Smith Requiring ICT capacity to support global operations Direct to Customer Sales Capacity Name & Logo Change Deployment • Countries ICT infrastructures are not the same: • Hardware & software differences • Support & maintenance differences • Staff access & training differences • Current systems - fragmented

  20. Assignment Case Study Modmeters– North American firm globalising in 3 continents CEO – John Johnson CIO Brian Smith Requiring ICT capacity to support global operations Direct to Customer Sales Capacity Name & Logo Change Deployment • How to restructure – decentralised or centralised or both • Capacity to support multi-location ICT service provisioning • Multi-site coordination issues • Change management issues in supporting new or terminating existing practices • Different ICT infrastructure quality & capacities in countries • People challenges – lacking capacities in cross culture communications and managing cultural diversity

  21. Honda Supercub Nice people’s bike Macho man’s machine …. Introduced in 1959…… Now dominant brand & market share Dominant US brand & market share during the 1950s…… Japanese time based strategy ? Japanese emergent strategy ? Is Honda’s US strategy deliberate? Is this an emergent strategy? What can happen if Honda promotes the budda’s eyebrow feature in the handlebar’s design in the past and NOW?

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