What are the Several Approaches to the Analysis of Business Organization?


By: Site Engineer, Staff

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There are several approaches to the analysis of the operations and functioning of business organizations. The approach adopted influences one’s understanding of the nature and problems of business organizations, and what solutions are considered appropriate for perceived problems. We shall discuss three of these approaches, namely:

1. The Rational Approach

The rational approach views business organizations as rationally designed to achieve set goals. The business maximizes the use of materials and people, and every action is considered from the point of view of whether or not it promotes organizational efficiency.

Decision making in the business is always based upon sound judgment because rules and regulations exist which indicate how individuals are to proceed in every case. The implication then is that individuals always act rationally, and in such a way as to contribute towards organization goal attainment.

The rational approach also suggests that there is one best way to carry out any specific activity in the organization. For example, there is one best way to produce a product or service; there is also one best way to market the product or service. At the level of human behavior and motivation, the rational approach concludes that there is not only one best way to motivate all individuals, but that most, if not all, individuals are, or can be motivated purely by material means, usually money.

The rational approach has usually relied on the principles of scientific management and bureaucratic organization. The major criticism of this approach, however, is that it presents us with a machine model of the business organization, in which parts are logically and neatly connected together.

The essence of the criticism is that this view of business organizations is unreal because if what it says were true, then, most managers would have little or no problems to contend with. Besides implying that parts are connected together, the rational approach does not tell us how and what consequences the actions of one part have on others.

2. The Political Approach

The political approach suggests that organizations are political by nature and that the actions and decisions of managers are motivated by the desire to secure, maintain and increase their areas of discretion, autonomy, and power in the organization.

This approach relies a great deal on the evidence of actual accounts of managerial behavior in organizations. These accounts often show the conflict between managers, between managers and workers, and between departments. Other accounts often show the business organizations acting to influence their environments through the use of recognized political methods as lobbying, force, manipulation, persuasion, co-option, etc.

This approach, therefore, suggests that the decisions of what to produce, how to produce, how to sell what is produced, when and where, are themselves political, in that these reflect the ideas and wishes of the most powerful individuals in the organization. The approach, therefore, directs attention to the phenomena of conflict and power as underlying the success or failure of business decisions, and therefore, also of the organization as a whole.

There is no doubt that this approach has a lot to recommend it. However, to view everything that happens in the business organization in terms of politics is to leave out of our understanding large and important areas of the organization, where effort is motivated by the genuine desire to contribute towards goal attainment because the goals are themselves accepted and shared. It is also the case that business organizations actually discourage political behavior, encourage cooperation, and plan activities on the basis of politically neutral criteria. Finally, if business organizations are nothing but areas for the display of political acumen by rival and multiple ‘political parties,’ then, the political approach has no answer as to why organizations survive and successes for a long as they do.

3. The Systems Approach

The systems approach views the business organization as consisting of several inter-dependent parts, which function for the satisfaction of the needs of the business. One of these needs is profit-making. Other needs may be growth, survival, employee satisfaction, and motivation, social responsibility, etc any organism that functions together to realize a common objective can be called a system.

The systems approach suggests that the business organization is like the human body. In it, there are several inter-related components or parts that must work together to sustain the life of the organization. The organization has several subunits which must function together to achieve its goals. In an organization, depending on its nature, there are:

  1. The general administration,
  2. Departments or divisions, and
  3. Individuals.

Each of these components has ascribed functional responsibility, which is designed to lead to the overall achievement of the goals or objectives of the system. These functional activities must be coordinated in line with laid down procedures. The systems approach further suggests that the business organization is not only a system but also a component body.

This is because:

(a)        There are people in it,

(b)        The activities of these people are integrated, and

(c)        These activities are geared to goals, or are goal-oriented

Furthermore, a system cannot be isolated from the environment in which it functions. The business, educational, or military organization, for example, cannot divorce itself from the influences of competition, consumers, government, interest groups, and other publics. The feedback produced by these groups of people co-inhabiting the environment of the organization helps in the formulation of policy and decision-making. Following this line of reasoning, a business organization can be classified as either:

(i)         Closed System View of Organization

A closed system does not interact or accept feedback from its environment. In reality, there is no organization that can be considered closed. A business organization that ceases to utilize the feedback from its environment will definitely fail to make a profit and will cease to exist.

In a developing country, a company may decide to ignore the feedback from its environment and remain in business, because there are no ready substitutes for the commodity it sells. The introduction of substitutes is likely to end the existence of the company.

This means that no organization can remain in business for a long time without feedback from its environment. So, a business organization cannot afford to be closed in the long run, since this will lead ultimately to the state of death.

(ii)        Open System View of Organization

The open system maintains itself in a steady-state or state of equilibrium and is self-regulating. A system is open when it interacts with its environment, and the longevity of its life depends to a great extent on the maintenance of its sub-systems, thereby avoiding entropy – a death state. A business organization, from the definition we gave earlier, utilizes its inputs to produce outputs. These outputs are sold to consumers with the intention of making profits. At the same time, the organization is regulated by laws. In order to make profits and stay in business, the organization must interact with place. Frequently, the business concern carries out surveys to determine the competitiveness of its products among products of other businesses. In order to retain business, the feedback or results from surveys must be utilized to improve its product quality and satisfy the needs of customers.

The organization’s products are also affected by government policies or regulations. For example, the federal government or one of the state governments in the federation may require manufacturers of automobiles to follow prescribed laws on emission control and safety devices. If the organization must engage in business in the state, it must adhere to these regulations. The same standards could affect foreign exporters of automobiles.

At the same time, the internal groups, that is, the workmen also affect the quality of the products. As a result, they influence decisions that affect the survival of the business. The satisfaction of the workmen who constitute one of the sub-functional units must be met by action from other sub-systems.

In the open system, the feedback from the environment made up of workmen, consumers, society (environment), government and unions are important considerations for decision making. The processor failure of decisions to achieve goals depends on the above factors.

The problems generated from feedback and data are analyzed and alternatives are selected. To operationalize solutions, workmen are involved, and procedures and processes are adopted. This helps in the production or achievement of results.

The entire input-output cycle takes place through the process of differentiation, that is, through the division of labor and specialization of parts in the performance of certain functions. Some parts specialize in the acquisition of input, others specialize in the processing of this input, yet others specialize in the disposal of outputs.

In managing the input-output system, managers strive to cope with their environments and utilize their resources in an effective and efficient manner. They attempt to do these through the judicious performance of the various management functions-planning, organizing, staffing, leading, motivating, communication and control. In the business organization, functional personnel, marketing, accounting, finance, and general management.

This article is specifically organized around the management function mentioned earlier and differentiated functions. We will now take them one-by-one.

1. General Management

This subsystem deals with the functions that are common to all managers. These are planning, organization, coordinating, staffing, motivating, leading and control. Every manager in the organization performs all of these functions, although, depending upon the location of the manager in the organizational hierarchy, some managers tend to perform more of some functions and less of the others.

2. Production

Production as a specialized business function is the mechanical or chemical transformation of input into a new product (output). These processes are usually undertaken with the aid of plant and labor. This is why the efficient management of the plant, labor, and material in production are crucial factors for success in business. In order to meet the need of consumers and their exceptions, quality control is important. This means regular maintenance of equipment and plant.

3. The Marketing Function

The marketing function is concerned with sensing and serving consumer needs at a profit to the business enterprise. Its major functions are identifying, monitoring, and interpreting consumer needs, participating in the translation of consumer needs into concrete products, pricing the products, creating a market for the products and distributing them, so as to ensure that consumers are satisfied. Marketing performs the additional function of helping to provide after-sales services, such as transportation, installation, maintenance, guarantee, and repairs.

4. Finance and Accounting Functions

Finance and accounting usually form a major department in large business organizations. They are also very vital in small business enterprises. The major responsibility of the finance department is the identification and evaluation of sources of funds, the generation of funds for the company’s operations, and guiding the firm in the utilization of such funds.

Accounting, on the other hand, is concerned with gathering, recording and analyzing the financial position of the company can be obtained easily at any given point in time. The purpose of accounting is to provide information which managers, shareholders, creditors and other users of accounting data use in making decisions that affect the company, directly or indirectly.

In the world of business today, the survival of a company depends to a large extent on how well the funds are managed and accounted for.

5. Personnel and Industrial Relation Functions

The personnel function in a business organization is concerned with obtaining, relating and maintaining a satisfactory and satisfied workforce. Personnel functions include manpower planning, recruitment, selection and placement of qualified individuals. Other personnel functions are wages and salaries administration, industrial relations, training, and development. Attracting and maintaining a satisfied workforce involves the integration of the personal needs of workers with the needs of the organization through proper motivation, leadership, and equitable personnel policies and practices.

Industrial relations deal with union-management relations, conflict resolution, and management through fair management practices, responsible leadership, and collective bargaining.

The personnel and industrial relations functions are therefore important sub-systems in the business organization, as they cater to the needs of subunits of departments and individuals.


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