A firm is an organization for business purpose. Organization in management literature means a unit created made of parts or component by act of bringing them together. It is an act of crating something. What are the parts that typically make a business organization? The parts of an organization are structurally called departments. These include sales, finance, human resources, production, R&D, and procurement. This essentially means organization is a coalition of different groups. Consider the following:
• Mr Human joins the business and he is very clear about the fact that he joins the business for compensation and progression.
• Mr Operations has technical guy who joins the business for making sure that operations run smoothly for longer runs and nothing upsets the production process.
• Mr Finance has had grounding in capital budgeting and cost of capital. He sees success in risk and uncertainty minimization.
• Mr Research has all along been known for his ability to invent. For him the organization is a new laboratory to experiment and create breakthroughs that make headlines.
• Mr Procurement knows it is easier to buy a few things from a small base of friendly suppliers. More suppliers and more number of purchase units upset their lives.
• Mr Engineering brings their design skills and knowhow to create new products and processes but with an eye only for the technical strength.
• Mr Manufacturing wants his production lines run as smoothly as possible. Frequent changes and modifications complicate their system.
• Mr Sales is always keen to convert whatever is given to him in cash by hook or the crook.
On the whole these coalitions making an organization bring different notions of effectiveness. Consequently it is natural for business firm to experience politics of coalition. Each of the coalition partners attempt to pull the entire decision making in the direction that deems fit (see the figure) . The localized effectiveness is pursued at the cost of global effectiveness.
This political way of functioning of business organization undermines the very purpose for which it comes into existence- the business. Business means actualization of a potential exchange with the prospect i.e. the customer. And in a competitive scenario the only way to succeed is to get the customers to say ‘yes’ to what a firm condenses in a product or service. The value offered by a firm is sigma of decisions made by different coalition members. The issue then is what is the probability that target customer would say yes to what firm has done? It is very low because typically none of the coalition groups represent customers. And when the customer pronounces ‘no’ to a firm’s offering the entire system loses because the revenue stream is cut. How can a business survive without its customers responding favorably to what it does? Business survives and prospers when customers open up their wallets for a product or service. Without this a product is an unrecovered cost.
It is in this context the top management is expected to perform a harmonizing role. A coalition is compulsorily likely to have conflicts arising out individualized or localized concepts of effectiveness. Consequently the system would get pulled in different direction readying it for failure. It is akin to making safe cabins in Titanic. People must go out of their cabins and make the Titanic safe. The concept of global ‘right’ or ‘effectiveness’ must be appreciated. A business does right when its products or services win target customers. It must be understood that a firm is an organization of coalition partners for the purpose of business. And business is about actualizing exchange with potential customers which happens organization creates satisfied customer. Therefore converge of goals and roles are essential to survive in a competitive market.
Managing coalition is a challenging task. All the companies which consistently perform well manage to do so by creating goal convergence amidst confusion and chaos. This is reason why only a few managers rise up to the top.