5 The profit goal. Profit is clearly essential to satisfy shareholders and financial institutions. It also serves as a source of investment and growth, and as a fund for ‘slack payments’ and ‘policy commitments’ (see below). Excessive profit might not be viewed so positively by customers, suppliers, shop-floor workers and outside agencies including government.
The setting of targets for the above goals will necessitate senior managers bargaining with the various groups within the coalition, and they will attempt to satisfy as many demands as possible. Certain basic goals (e.g. the sales goal) may be acceptable to virtually the whole coalition, since without sales the firm will cease to exist. As we have seen, other goals can cause conflict. It is also interesting to note that over different time periods certain goals may be given more prominence. For example, the firm might become more sales or marketing orientated due to the current state of the market or the dominance within top management of those with a marketing background. At other times the firm might become more production orientated.
Where conflicts persist, top management might seek a degree of resolution by providing rewards to individuals above their opportunity cost. A manager, for instance, might receive a salary in excess of that required to keep them in the firm. Or the manager of a department might become reconciled by the provision of more luxurious office space, recreational facilities, expense accounts, etc. Such additional payments are referred to as slack payments.
Reconciliation might be also sought via policy commitments to provide additional resources to particular sections of the coalition, such as through upgrading computing facilities in the finance department, or purchasing a new fleet of cars for the sales department. Such policy commitments might be sequential in the sense that a department might not receive immediate funding yet be told it has been prioritised for future funding. Priority should be given to the most immediate problems. For example, the breakdown of machinery might necessitate immediate investment in production.
In essence, the firm is not seeking to maximise any of its goals. Instead, it has aspiration levels with regard to these goals and seeks ‘satisfactory’ overall performance ‘satisfactory’ levels of production, inventories, sales, market share and profit. The firm therefore seen as a ‘satisficer’ rather than a ‘maximiser’.
The undoubted strength of the behavioural approach is to concentrate upon the nature of decision making (and compromise) within a complex business organisation. In that sense there is certainly a strong degree of realism. A consideration of the influence of the whole range of stakeholders, both internal and external to the firm, upon decision making is also welcome and timely, given the recent emphasis upon stakeholders in business practice. However, the need to include such a wide range of variables makes the model difficult to test, and as with other alternative theories there is no real concentration upon the interdependence of firms within oligopolistic markets.
Conclusion
The traditional assumption of profit maximisation can certainly be questioned as regards the ability and willingness of firms to pursue such an objective. This question was brought particularly into focus with the divorce of ownership from control in modern joint-stock companies and the unlikelihood that constraints upon managers would force them to retain profit as their sole objective. Managerial theories set out alternative models of behaviour with management assumed to seek the maximisation of its own utility through, for example, the maximisation of either sales revenue or growth. The choice of such an objective then impacts upon the firm’s price and output. In contrast, the behaviouralists focus upon the complexity of a modern business organization and question whether the firm should be seen to have a single goal. Instead, there emerge a number of goals, with top management seeking satisfactory levels of attainment for each goal rather than a strategy of maximisation.