Analysis of Apple Organisation with Agency and Sensemaking Theory - Case Study Example

Contents Contents 2 1. Introduction 2 2. Description of Organization 3 Reason for choosing Apple Inc. 3 3. Selected Theories for Analysis of Apple Inc. 4 4. Seminal Papers and Analysis of Apple Inc. 5 5. Organizational Issues with the Lens of Selected Theories 7 Issues at Apple Inc. with the lens of Agency theory 7 Issues at Apple Inc. with the lens of Sensemaking theory 8 6. Limitation of Theories for Analysis of Apple Inc. 9 7. Different Stakeholders’ Perspectives 10 8. Understanding of Different Stakeholders’ Perspectives 10 9. Conclusion 11 10. Reference List 13 1. Introduction Organisations are influenced by a lot of factors, both internally and externally. Through the use of theoretical frameworks, it becomes easier to understand an organisation by determining its behaviour (Jensen 2002). It also becomes possible to determine the existing relationship between the stakeholders and the company and how they affect the efficiency and performance. Use of theory lens provides a means in which one can critically analyse an organisation and gain a better understanding. This also helps in determining the theory that best fits the organisation as well as the usefulness and limits of theories (Pfeffer 1997). This paper will use the Agency and Sensemaking theory to analyse Apple Inc. This will be achieved by critically analysing seminar papers on two theories and using their lens to analyse the organisation. The paper will also analyse and understand different stakeholders’ perspective on the issues identified. 2. Description of Organization Apple Inc. was founded by Steven Wozniak and Steve jobs in 1976. The company is involved in the design, manufacturing and marketing of personal computers, media devices, mobile communication devices and related softwares, peripherals, third party applications and networking solutions. Apple Inc. has undergone a lot of transformations since inception. The company has over 92,600 employees employed in both full time and over 4,400 temporary employees. Apple Inc also has retail outlets in different countries globally. The company operates in a very competitive market with major competitors being, HP, Dell, Microsoft and Lenovo. The market is also highly affected by changing trends in technology. The company has over 26,112 shareholders (Apple Computer, Inc. 2014). Apple Inc. stock has been performing well over the years. Apple Inc. has been recognised as a leading innovator in its products category. The company is also recognised as the world leader in consumer electronics. Reason for choosing Apple Inc. Apple Inc. is one of most successful organisations. The company had undergone major changes since its inception, ranging from being on the verge of collapse to becoming market leader. The company has been able to rise to prominence and become a leader in innovation. The organisation will give insight on how Apple Inc. has been able to solve its problems and enhance production through efficiency to become market leader. 3. Selected Theories for Analysis of Apple Inc. The essay will use Agent and Sensemaking theories for analysis. These theories are the best to analyse Apple Inc. since the organisation has undergone a lot of issues based on agent-principal relations and major events that have happened. One of the major event that happened that changed employees and organisation behaviour is the return of Steve Jobs. This can be best analysed using Sensemaking theory. It’s very important in an organisation to determine the relationship between principals and agents (Eisenhardt 1989). It is also important to identify the agents and principals in an organisation. Agency theory will help in analysing the existing relationship between agents and principals at Apple Inc. Agent theory will also be applied to look at practices of monitoring agents at Apple Inc., monitoring systems by external auditors, how principals control agents, physical and social barriers between agents and principals, analyse agent crimes, and lastly discuss how principals are motivating agents (Jensen & Meckling 1976). Sensemaking theory looks at how people make sense of events and the impact it has on their behaviour (Weick, Sutcliffe & Obstfeld, 2005). This theory will help in identifying how people react to events at Apple and the impact they have on the way they behave. To achieve this, the theory will identify an important event that happened in the organisation. The stakeholders related to the event will be identified as well as the purpose for the event. After determining the background of the event, Sensemaking theory will be used to determine the impact the event had on employees’ behaviour as well as the overall impact on organisation productivity and efficiency. 4. Seminal Papers and Analysis of Apple Inc. Theory of the firm: managerial behaviour, Agency cost and ownership structure by Jensen and Meckling (1976) uses elements of agency theory and finance theory to come up with the ownership structure of the firm. Jensen and Meckling define the agency costs and relate it to separation and control. Apple Inc has been able to manage agency costs despite the impact of separation and control as explained by agency theory. Jensen and Meckling take a look at the nature of agency costs created by debt which is outside the equity. Apple Inc reduces its agency costs through appropriate management of incentives. The author asserts that agency costs occur in all situations where there are corporate efforts (Jensen & Meckling 1976). Apple Inc has been able to manage their agency costs by keeping them to minimum which have enabled them to have a good agent principal relationship. Agency theory: An Assessment and Review by Eisenhardt (1989) reviews the agency theory. The author looks at the theory contribution to the organisation theory and comes up with testable propositions. Apple Inc has one of the best agent principal relationships. According to the author, the main aim of the paper is to describe agency theory and comes up with ways in which researchers can benefit from it (Eisenhardt 1989). The author is able to prove that the theory is empirically valid. Eisenhardt (1989) looks at topics and contexts that are important for organization researchers who are using the theory. Agency theory application at Apple Inc has enabled the company to create a loyal customer base globally. This is through creation of long term value for the stakeholders. Organising and the process of Sensemaking by Weick, Sutcliffe & Obstfeld (2005), analyses Sensemaking theory. The authors take position that Sensemaking is an important concept that fills the gaps available in organisation theory. With support of adequate theory, the authors assert that Sensemaking theory plays a central role in determining human behaviour. Employees’ behaviour at Apple Inc was affected by the return of Steve Jobs in early 1990s. The authors take stock of Sensemaking theory by looking at its central features (Weick, Sutcliffe & Obstfeld 2005). This is by stating the theory in ways that makes more future oriented, action oriented and become more macro. Sensemaking have shaped Apple Inc. future organisational behaviour. Through events, Apple has transformed itself and become a leader in the industry. The Collapse of Sensemaking theory in organisations: The Mann Gulch disaster by Weick (1993) analyses the Mann Gulch fire disaster which occurred in Montana. The main aim of the paper is to show the gap that exists in our current understanding of the organisations. The author does this by focusing on why organisations unravel and ways in which organisations can be made more resilient (Weick 1993). Apple was on verge of collapse but an event changed it to become more resilient. The analyses of the incident give very important insights into the incident at Apple Inc. The incident at Apple Inc was the turning point which changed the organisation behaviour for good.   5. Organizational Issues with the Lens of Selected Theories Issues at Apple Inc. with the lens of Agency theory Using agent theory at Apple, the principals are the shareholders while the employees, suppliers and management are the agents. According to Eisenhardt (1989), the principals are busy, hence looks for the agent to run the organisation. This leads to a contract between principal and agent that determine their relationship. Critically looking at Apple Inc., it’s operated in a manner that is meant to benefit the customers first and shareholders followed. It has been argued that, corporations should be more focused on maximising shareholders’ value (Eisenhardt 1989). This is with an aim of solving the principal agency problems. This was aimed at ensuring that management did not advance their own interests at the expense of shareholders. To monitor agents, Apple uses external auditing firms such as PriceWaterhouseCoopers. The board of directors act on the behalf of Apple Inc. to monitor agents. The costs incurred through board of directors in the Apple Inc. can be considered as agency costs. There are also costs associated with preparing financial statements. The late company leader Steve jobs was known to spend a lot of revenue to make the customers satisfied through innovative products. It’s clear that Apple does not focus in maximising shareholders’ return. The company has not paid dividends since 1995. The company has not also used leverage. The main aim of Apple Inc has been to create value for the customer and establishing long term shareholder value (Jensen, 2002). According to Eisenhardt (1989), most agent principal problems are caused by the fact that the incentives given to agents may not lead to a behaviour that can benefit the principal. Looking critically at Apple Inc., they have been addressing this issue. This is through coming up with incentives that make the management help in growing the stock price (Worstall 2013). This is in the interest of the shareholders while at the same time, the agent is able to benefit (Eisenhardt 1989). Apple Inc. has come up with policy that requires the executive officers to have three times of their annual base salary in stock in a period of five years. These are also part of efforts to reduce agency costs (Worstall 2013). There has been a push to make agents substantial shareholders. Apple has been coming up with awards where best performing employees are recognised. Issues at Apple Inc. with the lens of Sensemaking theory Using Sensemaking theory at Apple Inc., it helps in analysing how people make sense of events and how they impact them. A major event in the history of Apple occurred in 1996. After the company poor performance over the years, the board sacked their chairman and CEO and asked Steve jobs to become the new chairman (All About Steve Jobs 2015). This event changed employees and organisation behaviour. According to Weick (1995), Sensemaking plays an important part in organisation behaviour. A year later, Steve jobs had reformed the company management and came up with a new board. One of his first decisions was making a deal with Microsoft. The main rationale was to solve the existing disputes between the two companies. The employees, customers and shareholders perceived Microsoft as an enemy, hence this was a hot issue. At the end, all lawsuits were dropped and Apple was allowed to use Microsoft word. Microsoft was also allowed to invest in Apple. The event led to reprehension from Apple fans. The event of Steve Jobs comes back and his decisions changed the company for good. The employees’ behaviours changed and had to adapt to new ways of working. The company improved in its efficiency by reducing the number of products and being more innovative. The innovative culture at Apple can be traced back to the event when Steve jobs returned to Apple. The organisation became more resilient and its customer satisfaction improved. This can be compared to the event at Mann Gulch fire disaster which made the fire fighting more resilient (Weick 1993). People were able to learn from the event and change their behaviours and attitude. 6. Limitation of Theories for Analysis of Apple Inc. Sensemaking theory has its limitations when analysing Apple Inc. According to Miles (2012), the theory is far from reality in some cases. This may lead to bias when analysing the event of Steve Job taking over Apple. Despite the fact that his comeback led to change in organisation behaviour, there might be other issues that led to change in behaviour. Sensemaking theory is a self fulfilling prophecy as people have a preconception of what they want to see (Weick, Sutcliffe & Obstfeld 2005). As in this case, people may overlook other factors leading to change in the behaviour. The theory also ignores the learning process which is vital in organisation behaviour (Miles, 2012). The separation of control and ownership created by agent theory makes it hard to discuss issues related to risk taking at Apple Inc. According to Eisenhardt (1989), while the shareholders are willing to take risks, they are not given interest and time to run the firm. It is also hard to determine whether the agent is acting in the interests of the principal due to imperfect contract. A self interested agent may take advantage of the contract and engage in actions for their own interest (Miles & Snow 1978). This makes it hard to determine whether the management at Apple always acts on interest of the shareholders or their own interests. 7. Different Stakeholders’ Perspectives The actions of apple management to maximise customers’ benefits and not focusing much on stakeholders has led to a large customer base. Agency theory advocates for maximisation of the principal benefits (Miles, 2012). The shareholders’ perspective seems to be based on the fact that though the organisation is more consumers oriented, the agent goal is to create their long term value. Though the action may seem to be against the agent theory, customers are able to enjoy innovative products leading to enhanced brand loyalty. They value the company and see it as the leader in innovation. Making the agents shareholders can be perceived by the employees as a positive move enhancing their sense of belonging. Competitors perceive apple as a strong competitor due to innovative products that have revolutionised the market. The comeback of Steve jobs to Apple must have been perceived as a threat by competitors. The event was a major turnaround for the company which might have led to hope among the employees. For the customers, the event was perceived as a positive move since Steve was one of the founders. This meant that they would expect innovations and improvements in products and services. It is important to note that jobs returned when the company was on the verge of collapse (All About Steve Jobs 2015). Stakeholders had already lost hope in the company. His return must have been a major relief to the stakeholders. 8. Understanding of Different Stakeholders’ Perspectives In order to understand Steve Jobs perspective on focusing more on customers than principals, there is a need to analyse the organisation background. There is also need to understand the motive behind Steve Jobs efforts in restructuring Apple Inc. after the comeback. Apple was a company which was considered by many to have collapsed. The management was poor and sales were declining very fast. The board of directors was already seeing the inevitable collapse. The current success at Apple is associated with Steve jobs with his passion for innovation. It’s also important to look at the industry trends and intense competition. These factors have led to push for innovation and new products and more focus on customers. Jobs knew that the market was competitive and had to enhance the company products. He knew that by enhancing the customer value, the company would have a lasting shareholders’ value (Jensen 2002). This is by appreciating the fact that satisfied customers would enhance loyalty, creating a large market share. Steve Jobs drive towards innovation can be attributed to his passion for creating an organisation that produced quality and innovative products. There is also need to know that the company is in a market that is highly unstable due to rapid technology change. This makes it vital to focus more on retaining customers than putting stakeholders’ interests first (Pfeffer 1997). Steve Jobs was open to ideas and always made sure that there was perfection in company’s innovations. He made sure that he learnt the competitors move in the industry. This is how he came to note that most of the competitors were more focused on maximisation of stakeholders’ value. He increased the expenditure on research and development which made it possible for the company to come up with innovative products. Despite the fact that he focused mostly on the customers, shareholders never complained. He was able to prove to stakeholders that they can only gain long term returns if they invest more on their customers. 9. Conclusion To sum up, Agency and Sensemaking theories are the most appropriate to analyse Apple Inc. Using lens of agency theory one is able to identify the relationship that exists between the principal and agent. To reduce agency costs, Apple Inc. have a comprehensive incentive contract. Apple Inc. has been looking into ways of using incentives to motivate agents and eliminate principal agent conflicts. Sensemaking theory is based on how people comprehend events and their impacts behaviours. Events such as return of Steve Jobs at Apple changed the organisation behaviour and led to improved productivity and efficiency. One is able to see change based on the impact of an event and how stakeholders perceived the event. These theories help a lot in determining the current status at the organisation. The agents’ main focus is customer with intent of long term stakeholder value. Apple Inc. has been able to enhance stakeholders’ value by focusing more on customer satisfaction. Using lens of Sensemaking theory, one is able to appreciate how an event can change organisation behaviour for good. Agency theory gives more insight on how to manage agent principal relationship in a manner that will eliminate any conflict. 10. Reference List All About Steve Jobs, 2015, “The long Bio, The return to Apple,” allaboutstevejobs.com, Retrieved 22nd March 2015 from http://allaboutstevejobs.com/bio/longbio/longbio_08.php Apple Computer, Inc. 2014. Annual report. Cupertino, Calif: Apple Computer, Inc. Eisenhardt, K. M. 1989. “Agency theory: An assessment and review”. Academy of Management Review, Vol.14, no.1, p.57-74. Jensen, M.C. 2002, "Value Maximization, Stakeholder Theory, and the Corporate Objective Function", Business Ethics Quarterly, vol. 12, no. 2, pp. pp. 235-256. Jensen, M. C., & Meckling, W. H. 1976. “Theory of the firm: Managerial behavior, agency costs, and ownership structure,” Journal of Financial Economics, Vol.3, p.305–360. Miles, J. A. 2012. Management and organization theory: A Jossey-Bass reader. San Francisco, Calif: Jossey-Bass. Miles, R.E., & Snow, C.C. 1978. Organizational strategy, structure, and process. New York, NY: McGraw-Hill. Pfeffer, J. 1997. New Directions in Organizational Theory: Problems and Prospects. New York: Oxford University Press Weick, K.E., Sutcliffe, K.M., & Obstfeld, D. 2005. “Organizing and the process of sensemaking,” Organization Science, Vol.16, p.409-421. Weick, K.E. 1995. Sensemaking in organizations. Thousand Oaks, CA: Sage. Weick, K.E. 1993, “The collapse of sensemaking in organizations: The Mann Gulch disaster,” Administrative Science Quarterly, Vol.38, no.4, pg. 62. Worstall, T. 2013, “Solving The Principal Agent Problem: Apple Insists That Executives Must Hold Company Stock”, Forbes.com, Retrieved 22nd March 2015 from, http://www.forbes.com/sites/timworstall/2013/03/01/solving-the-principal-agent- problem-apple-insists-that-executives-must-hold-company-stock/ Read More