Intervention in organizations
Assignment 2
Text assignment
1/2.
Jensen
Jensen is a supporter of Theory E, as he states in one of his propositions: ‘This house believes
that in implementing organizational change managers must have a criterion for deciding
, what is better and that better should be measured by the increase in the long-term market
value of the firm’.
Furthermore, Jensen also compares the value maximization approach with the stakeholder
theory. In this comparison, it is important to notice that Jensen states that the stakeholder
theory is incomplete and only serves the interests of the people who promote it. Value
maximization, on the other hand, can function as an objective function because it states that
managers should make all decisions which will lead to an increasment of the value of the
firm.
Jensen then discusses if a firm should maximize its value or not, and gives two issues:
1. Should the firm have a single-valued objective?
2. Should that objective be value maximization or something else?
1. it is really hard for organizations to only choose one dimension of
improvement/maximization. It is too often the case that maximization in one area causes a
reduction in the other. Secondly, it is not possible to maximize multiple objectives. If one
does try this, it can cause a lack of purpose or it will even jeopardize the firm's survival.
2. according to Jensen, social welfare is maximized when the firms within an economy
maximize their value. Because value is created when a firm produces an output which the
customer values more than the input which is used. Firms should increase their output as long
as an additional dollar of resources taken out of the economy is valued by customers at more
than a dollar.
In short, to maximize the social welfare, and with that the firm’s value, it can be said that a
firm should increase its purchases of inputs and sells of output as long as the additional dollar
of inputs generates sales of at least a dollar.
According to the stakeholder theory, a firm should take all constituencies into account, just as
with the value maximization theory. However, the stakeholder theory does not give us any
conceptual specification about how to make trade-offs among those stakeholders. Which can,
eventually, jeopardize the organization or even the society. Besides that, the stakeholder
theory also may result in people (and managers) only paying attention to their own interests,
which can result in extra costs. In the end, the social welfare will decrease when firms use this
stakeholder theory. According to Jensen, people use this theory, because we are evolutionarily
attached to small group and family.
Assignment 2
Text assignment
1/2.
Jensen
Jensen is a supporter of Theory E, as he states in one of his propositions: ‘This house believes
that in implementing organizational change managers must have a criterion for deciding
, what is better and that better should be measured by the increase in the long-term market
value of the firm’.
Furthermore, Jensen also compares the value maximization approach with the stakeholder
theory. In this comparison, it is important to notice that Jensen states that the stakeholder
theory is incomplete and only serves the interests of the people who promote it. Value
maximization, on the other hand, can function as an objective function because it states that
managers should make all decisions which will lead to an increasment of the value of the
firm.
Jensen then discusses if a firm should maximize its value or not, and gives two issues:
1. Should the firm have a single-valued objective?
2. Should that objective be value maximization or something else?
1. it is really hard for organizations to only choose one dimension of
improvement/maximization. It is too often the case that maximization in one area causes a
reduction in the other. Secondly, it is not possible to maximize multiple objectives. If one
does try this, it can cause a lack of purpose or it will even jeopardize the firm's survival.
2. according to Jensen, social welfare is maximized when the firms within an economy
maximize their value. Because value is created when a firm produces an output which the
customer values more than the input which is used. Firms should increase their output as long
as an additional dollar of resources taken out of the economy is valued by customers at more
than a dollar.
In short, to maximize the social welfare, and with that the firm’s value, it can be said that a
firm should increase its purchases of inputs and sells of output as long as the additional dollar
of inputs generates sales of at least a dollar.
According to the stakeholder theory, a firm should take all constituencies into account, just as
with the value maximization theory. However, the stakeholder theory does not give us any
conceptual specification about how to make trade-offs among those stakeholders. Which can,
eventually, jeopardize the organization or even the society. Besides that, the stakeholder
theory also may result in people (and managers) only paying attention to their own interests,
which can result in extra costs. In the end, the social welfare will decrease when firms use this
stakeholder theory. According to Jensen, people use this theory, because we are evolutionarily
attached to small group and family.
