|
a)
The Firm
a technical
unit engaged in the production of one or a group of related commodities. In
theory, perceived as a single product firm with the entrepreneur serving as a
surrogate for a decision-making hierarchy and involving the study mainly of
external behavior and only ‘cost analysis’ of internal production decisions,
i.e. not study of business management.
b) Profits
the residual
of revenue (price times quantity sold) after all factors of production have been
fully compensated. It is
compensation for uncertainty and entrepreneurship (normal or competitive
profits) or for monopoly (excess profits) or windfalls, i.e. there are different
forms of profit. In theory, profit
is viewed as raison d’etre of the firm which can be achieved, however, only by
satisfying consumer wants. A
strictly economic approach is assumed, i.e. political and social questions not
considered.
A distinction must be made, however, between 'normal' profits
defined as the opportunity cost of entrepreneurship and 'economic' profits which
is the excess of profits earned above normal profits. (MBB 10th Ed.
Fig. 7.1; P&B not displayed)
c) Production
the
creation of goods and/or services, which, directly or indirectly, satisfy human
needs. Through production the firm
generates supply which is the obverse of consumer demand.
In theory, production is viewed as the only function of the firm.
Through supplying commodities demanded by consumers, the firm maximizes
profits.
d) Input
(or Factors of Production)
any good or service which
contributes to the production of output. In theory, factors include:
capital (K); labor (L); land (N); and entrepreneurship. This last factor
is poorly defined and resists empirical measurement. In fact there
are three forms of Labour - (i) Productive, (ii) Managerial & (iii)
Entrepreneurial.
(i) Productive
Productive workers are those on the shop floor actually
producing goods & services. They are concerned with output. Their
knowledge is technical and specialized to a given industry or firm. In
effect they combine codified and tooled with personal & tacit knowledge
(memory and reflex) generally learned on the job in the Anglosphere.
Their knowledge involves making something or making something work. In
this sense the competitiveness of a firm or nation “depends not only on
sensible decisions about what to do, but on the availability of the
skills that are required to do it” (Loasby 1998, 143).
(ii) Managerial
Management, among other things, means “a governing body
of an organization or business, regarded collectively; the group of
employees which administers and controls a business or industry, as
opposed to the labour force”. It also means “the group of people who run
a theatre, concert hall, club, etc” (OED, management, n, 6). The role of
management is to make available the means (inputs) so that production
workers can perform their tasks and then to market and distribute the
output. In many ways management is like a choreographer, music or
theatre director. This sense of modern management is caught by Aldrich:
Thus the total operation is a performing art with
blueprints for score or choreography, the difference being that in this
technological case neither the co-ordinated performances (ballet) of the
skilled workers nor the finished product is put on exhibit simply to be
looked at, contemplated. It is a useful performing art. Its value is
instrumental.” (Aldrich 1969, 381-382)
Similarly, according to Schlicht, it is:
the fit of the organizational elements, rather than the
elements themselves, that characterizes a firm. Just as the quality of
an orchestra performance cannot be adequately measured by the average
quality of the performances achieved by the individual instruments, but
depends crucially on the way the instruments are played together, so the
productive value of a firm - as opposed to a set of individual
contracting relationships - emerges from the quality that has been
achieved through mutually adjusting the various activities that are
carried on. (Schlicht 1998, 208)
One crucial characteristic of the firm is custom
including tacit understandings of entitlements and obligations between
productive, managerial and entrepreneurial workers. This constitutes
part of what is commonly called ‘the corporate culture’ for which, on a
day-to-day.
(iii) Entrepreneurial
With the notable exception of
firms like Microsoft (Bill Gates) and Walmart (Sam Walton), most modern
corporations do not follow an original founder/owner but rather a ‘hired
gun’, or business entrepreneur. The word ‘entrepreneur’ comes from the
French entre meaning ‘between’ and prendre meaning ‘to
take’. The English ‘middleman’ retains this original sense.
During the Middle Ages and Renaissance, European traders (especially
from Venice and Genoa) ‘middled’, at high risk, between foreign
suppliers, e.g. of silk and spices from the Turks, and final consumers
in northern Europe. Today the term usually refers to someone who
sees and seizes an economic opportunity or a market opening or gap.
This may take the form of a new product or of servicing an existing
market in a new way. In both cases a high degree of creativity and
risk-taking is implicit. In this regard, the first English usage
of ‘entrepreneur’ was in 1828 meaning “the director or manager of a
public musical institution.” Today we would call this ‘an
impresario’. In fact, it was not until 1852 that entrepreneur took
its modern meaning of “one who undertakes an enterprise; one who owns
and manages a business; a person who takes the risk of profit or loss
(OED, entrepreneur, a, b).
Entrepreneurial knowledge is
intuitive in seeing and taking advantage of invariants and affordances
in a market that others do not see. It involves seeing and
realizing a vision of future markets, products and opportunities.
Ignorance is the opposite of knowledge, i.e., want of knowledge.
The non-rational way of entrepreneurial vision was called ‘animal
spirits’ by Keynes (Keynes 1936, 161). Like some ancient
priest-king, the entrepreneur ‘knows’ the future and leads his people
(investors, managers, workers and consumers) into it – right or wrong -
to success or failure. In a manner of speaking, prophets today
seek profits, not souls. Ideally, this highly valued form of
pattern recognition works best as “informed intuition” (Jantsch 1975).
All available information, knowledge and opinion is explicated but then
an intuitive, inductive judgmental vision is conjured up. In a sense,
the business entrepreneur or CEO has assumed the mantle of the Western
Cult of the Genius joining the artist, inventor and scientist.
e) Output
the result of transforming inputs into goods or services, which satisfy,
directly or indirectly, human needs. In
theory, quantity of output, along with price and cost is key in the economic
equation. Output is increased until
any additional output reduces profits.
f) Ownership
vs.
Control
a firm may be owned and controlled by the same individual or group, or these two
functions may be separated. In
theory, it is assumed there is no significant effect of their separation and
profit maximization remains the functional objective of the firm.
g) Diversification
the distribution of productive investment across geographic space, or
multiplying the number and types of outputs in order to insure profit stability
by offsetting gains and losses. In
theory, geographic diversification is not formally considered except as
additions to factor cost. Similarly
multiple outputs not formally considered.
h) Cost
the
value of factors of production in producing output and serves, along with price
and quantity of output, as key factor in economic decision-making.
If profit equals price time quantity of output (revenue) less total cost
the total cost equals the cost of input x plus the cost of input y.
i) Profit Maximization
the rational entrepreneur tries to maximize profits.
In theory, profits are expressed in $'s and assumes no other objective is
compatible with rationality. Profit
maximization insures survival of the firm.
|
