The Stakeholder Model

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From the managerial viewpoint, the principal goal of an enterprise isits output or product since a firm is best understood as aninput-output system, nested in an assemblage of relations withcustomers, regulators, competitors, and suppliers. Managing thecompany to produce output is an essential process in its operations.It is imperative for managers to take cognizance of the value-addedresulting from the production system of the firm and the utility madefor its customers. From this outlook, the management of a companyfocuses on creating a particular output. This paper compares andcontrasts the goal of a firm under the classic economic theory andthe behavioral theory of the company. It describes the pros and consof these methods and compares and contrasts the role of a managerunder the behavioral theory of the firm and the theory of managerialcapitalism.

Comparison of the Behavioral Theory and the Classic EconomicTheory of the Firm

The primary goal of business in both approaches is creating andmaximizing output [ CITATION Ale15 l 1033 ].

Contrast of the Behavioral Theory and the Classic Economic Theoryof the Firm

The behavioral approach of the company aims at optimizing manyconflicting goals like profits and market share, while the primarypurpose of conventional economic theory is maximizing profits. Theconflicting goals under behavioral approach result in a clash betweenthe functions, which produce the output of the firm, for example,research and development, quality control, and productiondepartments. Each of the conflicting interests focuses on achieving aspecific goal. Classic economic theory of the firm, on the otherhand, does not have conflicting goals. The company’s super-ordinategoal is its output (Alexander, 2015).

Pros and Cons of the Behavioral Theory of the Firm

The primary benefit of the behavioral theory of the company is thatthe conflicting goals it creates can help the business. The principaldisadvantage of this method is the risk that manufacturing may giveemphasis to the quantity of output at the expense of standards orquality of production. If the quality control system of the businessis not very strict, the quality of manufacturing might deteriorate(Alexander, 2015).

Pros and Cons of the Classic Economic Theory of the Firm

The primary benefit of the classic economic theory of the business isthat the output of the company is the organizing or integratingprinciple. Thus, it ensures the enterprise creates value-addedproduction, and that there is a return to each factor of production.Indeed, maximizing profits can result in higher wages paid toemployees, greater savings, or less susceptibility to takeovers. Onedisadvantage of this theory is that since it encourages firms topursue profit maximization, they may opt to cut costs includingemployees’ wages.

The Role of the Manager in the Behavioral Theory of Firm and theTheory of Managerial Capitalism

According to the behavioral approach of the enterprise, the primaryrole of the manager is acting as a broker among various conflictinginterest groups, while the theory of managerial capitalism statesthat the function of the manager is acting as agents of the firm’sstockholders (Alexander, 2015).


Indeed the ideas discussed above require companies to focus oncreating output. Given that businesses are best understood asinput-output systems nested in ties with consumers, controls, rivals,and suppliers, their primary goals should be the creation of output.The success of a firm depends on its ability to create production andwhether all its interests are aimed at achieving a particular goal.


Alexander, P. (2015). Corporate Social Irresponsibility. New York: Routledge.