Understanding Theories

In addition, this essay examines different stakeholder perspectives in relation to the harries and their issues, and it concluded by focusing on what type of knowledge, capability, and skills a manager requires in order to deal with these specific issues. Coca Cola was founded during the year 1887, by Doctor John Phenomenon, a pharmacist from Atlanta. John established a company which immediately began building its global network, he was known as the man who achieved a “global success through an intelligent risk”.
Over the years, the company’s success rate continuously increased, and the deep emotional bond between Coca-Cola and its consumers grew even more powerful and more global (Coca Cola, 2014). In 2014, Coca-Cola advised that the previous year $2. 8 billion in stock was purchased, however they had planned to increase that amount to between $3. 0 billion and $3. 5 billion for the full year, due to positive sales, this is a clear indication of the company’s success (Reuters, 2013).
The Coca-Cola Company, is the world’s largest beverage company, operating in more than 200 countries, across America, Europe, Eurasia, Africa and the Pacific. This multinational beverage corporation and manufacturer, retailer and marketer of non- alcoholic beverage concentrates and syrups, is headquartered in Atlanta, Georgia (Coca Cola, 2014). The secondary sector, international organization, has not been owned by a single individual in almost 100 years. It is a public company that trades its shares on the New York stock exchange – meaning it is ‘owned’ by thousands of shareholders and investors worldwide (Coca Cola, 2014).

Coca Cola is known as one of the world most successful beverage companies to date, currently operating with over 700 000 employees across the globe, including Mutter Kent; the chairman of the board and chief executive officer (Coca Cola, 2014). The agency and contingency theory are both of significance to Coca Cola. The Contingency theory is a class of behavioral theory that claims that there is no “one best way’ to lead an organization, organize a corporation or make a decision. Instead, the appropriate organizational structure depends on the contingencies facing the organization (Travis Spread, 2012).
Coca cola does not have control over the contingencies that are continuously arising within its internal and external environment; this includes political changes, such as the increased health standards for bottling. The contingency theory was chosen as it typifies that implementation of the appropriate organizational structures, depending on the contingencies the organization is facing, will result in business success. The managers at Coca Cola are aware that companies whose characteristics fit with the contingencies in the current situation will perform more effectively compared to an organization whose characteristics do not.
Hence, implementation of this theory has allowed managers to adopt certain characteristics of the organization, such as the structure, to suit contingencies within their environment. The agency theory is concerned with resolving problems that can exist in agency relationships; that is, between principals and agents of the principals (Investigated, 2013). Generally, in large companies, with managers acting on behalf of their owners, many issues will arise in relation to the principle and the agent. Managers tend to misbehave if the interests of them and the company owners diverge (Eisenhower, K.
M, 1989, page 58). The agency theory is of crucial importance to this study, as it highlights ethical and commercial issues which arise from an agent/principal relationship. As seen with Coca Cola, 2013 entailed substantial pay cuts to most top executives, due to over one fourth of the shareholders voting against them. As a result, many executives became denominated to work in favor of shareholders, who they believed were only acting in their own self-interests. In the article “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure” Jensen, M.
C & Neckline state that if both parties to the relationship are utility maximizes, it is almost certain that the agent will not act in the best interests of the principal Nonsense, M. C & Neckline. W. H, 1976, Page 5). The authors propose that many complications can arise as a result of a number of costs, including monitoring costs, in such a relationship. Jensen and Neckline then typify, that the principal may limit these divergences by implementing appropriate incentives for the agents and “and by incurring monitoring costs designed to limit the aberrant activities of the agent” Nonsense, M.
C & Neckline. W. H, 1976). “The Academy of Management Review’ by Kathleen M. Eisenhower, is a second study on agency theory, which states that there are two main problems that the agency heron is concerned with resolving. The first problem is the problem of risk sharing, which is the problems that arise when the principal and agent have different attitudes towards taking risk (Eisenhower, K. M, 1989, page 64). Due to different risk tolerances, the principal and agent may each be inclined to take different actions, which will result in the “agency problem”.
The second problem, known as the agency problem, is the problems which arise, when the goals of the principle and the agent are not aligned. These problems both arise as a result of ‘information asymmetry. Eisenhower highlights these problems in order to remind us that regardless of what we think, organizational life is based on individuals acting in their own self-interest (Eisenhower, K. M, 1989, page 64). Leg Donaldson, in his 2001 paper ‘The contingency theory of organizational design’, provides a comprehensive, in depth analysis of the contingency theory.
He states that a successful organization is not one that adopts the maximum level, but instead, the appropriate level of structural variables, that depend on some level of the contingency variable (Donaldson, 2001). He then proceeds with explaining that a company may only increase its performance levels by adopting strategies depending on the contingencies the organization is facing (Donaldson, 2001). Similarly, in his paper, ‘Complex Organizations: A critical essay, Charles Proper also stresses the importance of the contingency theory within organizations.
According to Proper, organizations should adopt organic structures, based on the internal and external contingencies the company is faced with (Proper, 1979). He states that business structures should be developed according to each individual organization, rather than upon some universal principles or procedures (Proper, 1979). Proper strongly believes that complying with the contingency theory will result in the business achieving utmost success. A number of issues in relation to management and the organization have been raised, as a result of the agency and contingency theories.
The agency theory was initially designed in order to assist in the understanding of the agent/principle relationship. Williamson (1985) identified opportunistic behavior as a norm within organizations, stating that agency problems are more than likely to occur. He specified that managers often act opportunistically, and that trustworthiness is no longer common. Jensen and Neckline (1976), supported Williamson claim, they believe it is generally impossible that management will act in favor of the principle, as their main focus is to maximize their own wealth.
Coca Cola proved this to be true in 2013, when Californian managers were sued for underpaying their employees in order to reduce expenses (D. Blackburn. 2013). Jensen and Neckline (1976) also believe that the agency theory may also initiate moral issues between the agent and other takeovers, such as the public. As seen with Coca Cola, India, 2002 entailed an agency issue between management and the public. Communities across India living around Coca-Cola’s bottling plants experienced severe water shortages, as a result of Coca-Cola’s massive extraction of water from the common groundwater resource.
The public criticized the company, stating that Coca Cola is willing to damage the nation, for their own “self-interest” of cost cutting. The company refused to amend their procedures until they were forced to by government. (Blackburn, 2013 ) Drain and Van De Even (1985) believe that environmental uncertainty can occur as a result of the contingency theory. They believe that an issue with the theory is that there are no pre-developed structures that an organization can adopt if internal and external contingencies, unexpectedly occur.
In order to avoid these issues, Drain and Van De Even (1985) state that an organization must develop structures that it can quickly implement if internal and external contingencies, unexpectedly occur. In 1981, Coca cola began to lose market share to Pepsi, as the company had developed a new racketing procedure, which did not appeal to the public. Coca Cola failed to develop alternate plans if contingencies within the external market, such as increased competition occur. As a result, by 1983, Coca Cola’s market shared, decreased to an all-time low of Just below 24%.
Due to this disastrous situation, Roberto Goutiest, Coca Cola’s chairman at the time, decided that in the future, the company will rule out all contingencies and possibilities, and have further plans, if their current procedures fail. In his article “Contingency theory: Science or Technology’ Stephen C. Beets insinuates that over the years, many criticisms/limitations of the contingency theory have developed. He states that one criticism of the contingency theory is that “the causation of certain contingencies are assumed, but not explained” (Beets, 2011).
The assumption is that because a set of environmental conditions and organizational design characteristics were found to be correlated that this is the best fit (Beets, 2011). Stephen (2011) then continues to explain that decisions should not be made based on this assumption, instead informed decisions must be made, based on glacial reasoning of each unique situation. Morehouse (2007), believes that the theory fails to explain why some people are more effective leaders in some situations than others.
Shah (1979) adds on to Northerners claim, he states that the theory has not identified what an organization should do, when there is a mismatch between the managers and the current situation within the workplace. Similarly, in his text ‘Management and organizational theory, Jeffery A. Miles makes aware many limitations of the agency theory. Miles suggests that empirical research as failed to support basic tenets of the theory, including ways to mitigate the agency problem (Miles, 2012). Hence, researchers are now asking for re-examination of the theory so that research can move into new and different directions.
Miles (2012), made reference to Proper (1986) who claimed that the agency theory does not clearly address any organizational problems, as well as Hirsch and Friedman (1986) who invited agency theory as excessively narrow, focusing primarily on organizational stock price. Different stakeholders have different views regarding the contingency ND agency theories. Assassinates (1989), highlights that perspectives will differ amongst all stakeholders, regarding risk sharing, which is one of the main problems within the agency theory.
Assassinates (1989) stated that managers tend to avoid taking risks, as they fear the possibility of failure, which may result in damaging the organization. On the other hand, other stakeholders, such as shareholders of the company, may support the idea of ‘risk sharing, as certain risks may result in increased profits for the company, hence, maximizing their shares. As stated prior, Jensen, M. C and Neckline (1976) believe that managers (agent) tend to make decisions that will result in maximizing their own utility. In doing this, agents will significantly benefit, as their own wealth may substantially increase.
On the other hand, shareholders of the company (principles) will generally oppose these decisions, as they fear that they aren’t receiving a fair share and getting the best possible investment from the company. Similarly, Woolworth, being the agent of Coca Cola, attempted to boost its own profit margin, by decreasing Coca Cola’s prices, before lacing them on the shelves. Woolworth attempted to maximize their own utility, by decreasing costs of Coca Cola, with the intention of gaining more customers, hence improving their market share.
Coca Cola felt as though Woolworth breached their contract terms, as they were gaining an unfair leverage http://www. Afar. Com/p/ business/companies/clash_of_the_titans_woolies_coke_KJLlpFFlJfabEGgdeAnswO . Similarly to the agency theory, stakeholders also have opposing views in relation to the contingency theory and its issue of ‘environmental uncertainty. Managers may appreciate the idea of environmental uncertainty, as it creates a spontaneous environment, which may work in their favor. Managers are able to adopt the business strategies that they know will be effective, due to past experiences.
On the other hand, other stakeholders, such as employees may not appreciate environmental uncertainty, as continuously changing management structures, may require employees to attain new skills. Hence, employees will be required to spend more time in the training and development process, thus, resulting in increased costs for the business, meaning less pay and/ or benefits for employees. In earlier years, Coca Cola in India saw that environmental contingencies, such as economic decline, were forcing other Indian companies to change their employee pay rates.
As a result, Coca Cola changed their employee pay rates, in line with the other Indian companies. The Indian companies’ success rates began to increase due to cost cutting, however Coca cola experienced a significant level of employee’s voluntarily leaving the company, as they became denominated and felt mistreated (Coca Cola, 2012). Managers/leaders must ensure that prior to managing an organization; they have an understating that perspectives will differ, amongst all stakeholders within the company.
Managers must ensure that they reason logically and fairly rather than emotionally, this will guarantee that they do not act in their own “self-interest’. Therefore, they must pay attention to his/her personal as well as other people’s assumptions, perspectives, and biases. This process should be approached with integrity, open-mindedness, honesty, and accuracy. It is also important for a leader/ manager to uphold ethical and moral standards, in doing so employees with feel as Hough they are being treated Justly.
As a result, managers are not only increasing efficiency, but also nurturing skills, developing talent, inspiring results, and erasing all employee concerns regarding any issues of mistreatment, such as underpay. Further to this, managers must not only treat employees fairly, but also, all other stakeholders within their company, such as shareholders, customers, suppliers, and so on. In doing so, leaders will ensure that they gain positive relationships, which will result in improving the market share of the company, hence, gaining a significant nominative advantage.

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