Complete Summary Business for Lawyers - Notes on all Chapters/Readings + Lectures + Tutorials
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Business for Lawyers (620292B6)
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Tilburg University (UVT)
Book
Economic Approaches to Organization
This summary contains notes on all the readings (including web chapters 14-16 and normal chapters 1-13 (except for ch. 12 since this isn't included in the materials) + the 'Theory of the Firm' article), lectures and tutorials! It is an extensive/elaborate document since it includes all relevant ex...
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Notes on Modules & Readings – Business for Lawyers
Semester 2 (2023)
All chapters + slides
Module 1
Ch. 1 Markets and organizations
Economic problem = when scarcity of resources leads to needs not being met, with
resources meant as a broad term, meaning all factors that may contribute towards
the satisfaction of human needs the problem of how to make the best use of
available resources what is the optimal allocation of scarce resources over the
alternative uses that can be made of them?
When resources are optimally allocated, they are used with efficiency. Resources
are optimally allocated when:
They are directed to their most productive use; or
A given amount of production is achieved with a minimum of resources
Economic approaches to organizations are helpful when the problem to be studies
has an economic aspect = when it deals with the allocation of scare resources.
Economics are parts/aspects of problems, problems are almost never purely
economic.
Basic conceptual framework to explain the fundamental economic approach to
organizations:
Division of labour = the splitting of tasks made
up of various elements into those separate
elements and having these performed separately
used in society, sectors and organizations
which split themselves into different parts to
,accomplish their tasks. Adam Smith: progressive division of labour productivity
increases = main source of the increasing ‘wealth of nations’ specialized
production is more efficient than unspecialized production, thus there are economies
of specialization to be gained.
In short: division of labour specialization efficiency gains
To obtain goods and services people wish/need to consume, exchange must take
place (the right to use must be transferred). Exchange mostly takes place through
markets. Exchange = (economic) transaction, and transaction is achieved through
coordination. Specialization need for coordination, because otherwise how might
these specialist/specialist goods find each other and make an exchange?
In stock markets, coordination is made easy, as the price system is the coordinating
devices that takes care of allocation, and the price is all a buyer or seller needs to
base their transaction on (it is a sufficient statistic). Another example of such a
market are markets for raw materials, in which the adjustment of price levels is
sufficient for communication of all necessary information to all relevant parties.
However, such systems also come with costs (such as time) organizations and
markets provide two ideal types of coordination for exchange transactions. (Coase)
markets and organizations are two competing coordination mechanisms for
transactions (with key differences!)
Market = an abstract place where demand and supply meet. An ideal market
has prices which act as sufficient statistics for individual decision-making
Organization = An ideal organization = all those forms of coordination of
transactions that do not use prices to communicate information between the
transacting parties.
So, if markets are efficient, why do we need organizations? Organizations are an
alternative to markets in coordinating transactions: the price system as coordination
mechanism is replaced by internal authority. Because of this authority in the
transaction, some transaction costs that appear in the market are internalized and
thus reduced.
Information = the crucial concept in the framework, as it explains how coordination
will take place. Organizations are more suited to dealing with certain information
problems than are markets, so organizations arise as solutions to information
problems the market/organization mix depends on the particular information
requirements for the situation
The context in which trade-offs between market and organizational coordination are
made = the environment, which includes many dimensions, including social,
political, cultural, institutional, etc. Organizations and markets do not operate in a
vacuum, but live in an environment that
Provides the conditions for particular organizations to be created
Shapes all organizations by exerting economic, social, political, and other
pressures
, Is also the ultimate selection mechanism for determining which organizations
can survive and be successful, while other organizations are ‘selected out’ and
perish.
Institutions are part of the environment. According to Douglass North, = ‘the rules of
the game in a society, or more formally, are the humanly devised constraints that
shape human interaction’, including both formal (laws, regulations) and informal
(company culture, norms of behaviour) rules. If we regard institutions as the rules of
the game, imposed by the environment, then we can see how the economic ‘game’
played is fundamentally shaped by the institutional framework of a particular country
governments are a very important actor in the environment, however much debate
exists in how big the role of the government should be.
Together, all such actors and factors constitute the specific environmental context
and institutional framework in which economic activity is carried out in organizations
and markets. Given the many different choices that can be made in those dimensions
in different countries, the context will also vary from country to country.
Ch. 3 Organizations
An organization is a structured social system consisting of groups and individuals
working together to meet some agreed objectives (Greenfield & Baron). Different
actors in organizations are operators, managers, and analysts.
Based on the typology of Mintzberg, an organization consists of six basic parts:
1. The strategic apex = those managers at the very top of the hierarchy. Carry
three sets of duties to make sure the organization serves its mission effectively
- Direct supervision
- Manages relationship between the organization and its environment
- Develops organization strategy
2. Middle line = those that join the strategic apex to the operating core: perform
all the managerial roles of the chief executive but in the context of their own
units all level managers
- Direct supervision
- Mutual adjustment
- Both vertically and horizontally
these together form the administrative component
, 3. Operating core = those that provide the basic work of the organization, the
heart of every organization. Primary functions
- Secure inputs
- Transform inputs into outputs
- Distribute outputs
- Provide direct support to the previous functions
4. Support staff = supports the functioning of the operating core indirectly, such
as legal counsel, public relations can be present at all levels
5. Technostructure = they carry out the work of standardization by applying their
analytical techniques to make the work of others more effective, such as
engineers, planners, accountants, trainers, recruiters can be present at all
levels
6. Ideology = a system of values and beliefs of an organization shared by its
members and distinguishes it from other organizations
Within organizations, authority directs the allocation of resources instead of the price
mechanisms. Various ways to communicate knowledge and coordinate economic
activities exist, other than price and authority. Mintzberg developed a typology of
organizational configurations = a distinction between various types of coordination
mechanism. In this way, he shows how various elements of structure of organizations
configure with determinants of organizational structure.
These are all ways in which
work is coordinated within
organizations ways in
which people in
organizations can
communicate knowledge
and expectations, and how
they may learn from others
all alternatives to the
price mechanism for
communicating information
and coordinating economic
activates. Authority is only
one of these mechanisms.
Mutual adjustment achieves coordination by the simple process of informal
communication withing an organization. The do-ers are in control.
Direct supervision, in which coordination is achieved by having one person
issue orders or instructions to several others whose work interrelates
Standardization of work processes achieves coordination by specifying the
work processes of people carrying out interrelated tasks (the standards are
developed in the technostructure, which is the part of the organizations where
staff outside the hierarchy plan and control the work of others. Work processes
are carried out in the operating core)
Standardization of outputs achieves coordination by specifying the results of
different work (usually developed in the technostructure) specifies the
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