Business Theory

Posted by Lilia Ramsey on July 25th, 2019

Business theory is defined as a set of propositions, assumptions, and accepted facts, which attempt to provide a rational or plausible explanation of causal relationships among a collection of examined phenomena. It refers to the rationale through which business organizations are created, deliver, and capture value in the process of producing products and services in exchange for monetary benefits. The origin of business theory can be traced to the Greek word “thoros” which means a spectator and stresses the fact that all the business theories are mental models perceived to be real. The paper also explicates on the different types of business theories that are in practice in the current corporate world. Examples of such business theories include the theory Y and the theory X by Douglas McGregor, the management theory by Fredrick Taylor, the motivational theory and the real business cycle theory. Business theories take into account various factors such as social factors, economical factors and cultural factors in the construction of a business organization and applicable strategies. A valid business theory should be consistent, clear and powerful in order to yield extraordinary results in the event of implementation by the organizational business managers. Business theory is related to management process because it offers a guideline on the formation of the business structure, business models to be implemented, types of leadership within the organization and the communication channel. This paper examines the meaning of business theory and its relation to management in business management essay.

There are various assumptions that govern the formation of business theories. The first assumption of business theory is based on the environment of a particular business organization, the structure of the society in which the business operates, the technological advancement, the market and the customers. The assumptions on the environment determine what a business organization is paid as an exchange for the services provided. The second assumption of business theory is based on the explicit mission and vision of the organization. This implies that the main goals and objectives of the business organization are clearly defined in the business theory to facilitate swift and successful implementation. The assumptions on mission help to define what kind of firm is considered meaningful both financially and socially. The third assumption of business theory is based on the core competencies required to accomplish the objectives of a given business entity. Such factors include leadership characteristics and the technical leadership qualities needed to enhance the quality production of goods and services for a business firm. This assumption determines the critical areas where an organization must excel in order to retain leadership in the competitive corporate world.

There is a multiplicity of business theories that have been formulated by economists to enhance the success of a business organization. Examples of business theories include the management theory, the theory X and the theory Y, the motivational theory and the business cycle theory among others. The motivational theory is classified into various categories and this includes the incentive theory of motivation, the arousal theory of motivation, the drive theory of motivation and the humanistic theory of motivation. The incentive theory of motivation is defined as the ability to motivate employees to perform organizational tasks in exchange of external rewards such as incentives and fringe benefits. For example, one is motivated to work because of the monetary rewards available to him at the end of a particular period of work. In accordance with the drive motivation theory, the employees are motivated to undertake certain actions with the intention of reducing the internal tension, which arises because of unfulfilled personal needs. This implies that the employees are purely employed on contract terms in order to fulfill internal needs such as hunger and thirst.

The other type of a motivational theory is the arousal theory of motivation. This theory suggests that the employees of a given organization undertake various actions with the intention of increasing or reducing their varying levels of arousal. The main purpose of this theory is to help the employees to maintain an optimal level of satisfaction. For example, when employees feel too low, they can decide to watch an exciting movie in order to increase their level of arousal. On the other hand, when the levels of employees are too high, they can decide to read a novel in order to calm their feelings. This ultimately helps them to remain focused towards the realization and achievement of the goals and objectives of the organization. The other type of a motivation theory classified under motivational theory is the humanistic motivational theory. Abraham Maslow’s hierarchy of needs states that a person has to satisfy the most pressing and immediate needs before satisfying the needs in the subsequent level. This therefore implies that the employees are motivated to satisfy the most basic needs after which the secondary needs such as entertainment can be satisfied. This theory works because the employees have powerful cognitive reasons to perform their responsibilities in their places of work.

The theory X and the theory Y are business theories formulated by Douglas McGregor that are based on the human motivational factors (Veblem, 2011). This theory has been applied to great effect in various business fields, such as, human resource allocation, organizational development, organizational communication and organizational behavior. The two theories have contrasting characteristics about the perceptions of the managers of a given organization towards their employees. For example, theory Y assumes that the employees are inherently lazy and have to be forced to perform the tasks of the organization by the use of threats. However, the theory Y assumes that the employees are self-motivated and ambitious and they can easily exercise self-control in the performance of their tasks. The theory X assumes that the employees need formal direction in order to perform the assigned tasks. This implies that they are not able to achieve the objectives of the organization without direction from the managers and the management team.

Conversely, the theory Y assumes that the employees do not require formal direction and that they readily accept responsibilities (Brigham, 2010). They are innovative and creative and therefore tend to take the initiative of fulfilling the goals of the organization. The type of leadership under the theory X is dictatorial because of the resistance to changes offered by the employees in the organization. The theory Y on the other hand utilizes the democratic kind of leadership and the employees are a part of the decision-making process in the organization. The theory Y is effective because it facilitates the development of the creativity and the innovativeness of the employees unlike the theory X which tends to promote high levels of mistrust between the staff and the employees. The theory X also tends to create a punitive atmosphere, which is not conducive for the smooth realization of the objectives of the organization. The theory Y is preferable because it encourages cordial team relations, stimulates job opportunity and it involves total participation of the employees and the management team in the decision making process.

The other classification of business theory regards scientific management theory, which was formulated by Fredrick Taylor. He proposed that the employees should be recruited by the use of scientific methods. This theory which was hugely successful during the 19th century was adopted by almost all the organizations. It proposed that the management team should practice delegation of authority and that work should be divided into stages. The theory also encouraged the management team and the workers to cooperate fully in order to realize the scientifically developed models in the organization. The other classification of business theory is real business cycle theory which refers to the class of theories that were investigated by John Muth in 1961but are mostly associated with Robert Lucas (Dixit & Nalebuff, 2010). This theory proposes that the business cycles should be entirely driven by technological shocks rather than by alterations in expectations or monetary shocks. Technological factors refer to the events that change the production functions in a macroeconomic model. It is therefore necessary for the business organization to control such events in order to curb the production costs efficiently.

The business theories are related to management because they provide the guidelines through which the managers impose their authority on the employees with the view of achieving the main objectives of the business firms. It is therefore true to conclude that the managers greatly depend on the business models to formulate achievable goals for the organization. Through the business theories, the management team is able to achieve their objectives by planning, organizing, staffing, controlling and coordinating the efforts of the employees. The business models therefore provide a platform for continuous success in terms of the performance of the business organization. The employees of the organizations also get to be motivated by the management team in order to facilitate easier completion of the tasks. The management achieves this by satisfying the psychological and physical needs of the employees. The business models also provide corrective measures to the mangers in the event that the employees are not working to their potential. Such corrective measures include the use of coercive methods, threats and personal involvement. This enables the organization to solve the issues amicably, thus promoting mutual co-existence amongst the members of the business organization.


Lilia Ramsey

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Lilia Ramsey
Joined: July 25th, 2019
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