The Logic of Firm and Market - Term Paper Example

Full The Logic of Firm and Market In your own words, how do you define a firm? What is the purpose, and function of this phenomenon? How is it distinct from other related phenomena? A firm is a complex whole formed by producers, managers, sellers and specialists on certain areas where goods and services are exchanged where there is a certain relationship among the people involved bound by a contract that can last for a long time. This system is organized with a specific role for each player. From the essay Complex Information Technology- Intensive Firms- A New Paradigmatic Firm- Theoretical Imperative!, the author says the purpose of the firm is value creation, that is, it should be able to exchange goods and services on a higher price than the expenses during the production of these goods and services. As any business, the firm exists to profit as it performs its function which is to produce products and services through process (Jelen). It is then its responsibility to create goods and services that would meet the consumers’ demands and needs which are quality based. On the basis of value, modern entrepreneurship does not limit his definition to goods alone that would give profit to the firm but the services as well and of course those which are involved in rendering the services, the human being. Thus, skills, intelligence, knowledge and understanding are also considered values as these are used to produce the tangible produce exchanged in the firm. As Coase says, a firm thus is made up of the system of relationships when the direction of resources is dependent on the entrepreneur (393), giving it the responsibility to give value to its good relationship with the service providers. A firm is likely to survive in cases where a very short term contract would be unsatisfactory (Coase, 392) since the goal of the firm is to profit, therefore, it looks into the inclination of minimizing expenses. In contrast, the market is a system of producers, sellers and consumers in an unorganized fashion where services and goods are exchanged as the need arises in an unprecedented manner and where contracts are on a short term, if there are any. The players in this system could find people whom they could exchange goods and services depending on the prices set in the market, ending contracts in an untimely manner. Why did the network, flat structure of production not emerge before the late 20th century? Or did it? And, conversely, why were we dominated by- and infatuated with- the hierarchal (organizations) of productive entities? Flat structures of production I guess were existent even before the late 20th century however, it was not so much noticed and valued as it is today. History would show that this structure has long been existent in the army, in the teaching profession and other professions as well, with the people directly involved in attending to the problems encountered in their profession, thus, they are able to provide solutions more efficiently. As Jelen pointed out in his essay, once the information regarding the flat and open structure become as a common knowledge to everyone, this would be virtually important to every entrepreneur. The idea of hierarchical structures of productive entity has so much influenced the modern economic industry because of the belief that specialization brings more efficient and effective production of goods and services. Division of labor in an organized manner would picture a well-developed, highly skilled system of entrepreneurship that would attract consumers to avail of the goods and services offered in a firm. As a part of the services offered, a quality based, effective catering to the needs of the consumers not only to the physical needs but the human needs as well can not be exchanged in a tangible means like money but the appreciation of the manner of servicing brings profit as more consumers are drawn to the firm. Employees enjoy as much honor as the firm they work for. They carry whatever prestige is attached to the name of their firm wherever they go and this is one big factor that also challenges each individual to give the best service he could offer for his firm. The higher they go that hierarchical structure, the more respect they get not only from other people but from his colleagues as well. This recognition an employee gets, puts him in a pedestal that would be much envied so that our focus naturally goes to that position where we are recognized. The pride one has in his part in the hierarchy is a value not of the tangible part but something really important to a person which has a domino effect in the success of his performance as an individual and as an employee. This dependable quality makes the firm happy to recognize its structure and the people assigned to this structure, further encouraging them to be even better in their performances. Why is size (scale and scope) so overrated today? Size is synonymous to success. The bigger a firm is, the more it is considered successful. Basically, size as Jelen stated, is treated as a necessary condition for monopolistic positioning which every entrepreneur would gladly achieve. Owning a big firm spells out much profit which is the reason why firms came into existence in the first place. However, size now determines a more important function which is to create value. In terms of goods, the volume of demand from the consumers could be met as the size of a firm is large enough to produce goods. When it comes to services, the bigger the firm is, the bigger the variety of skills, knowledge and expertise there would be in a firm. Thus, there would be more variations to the products produced, a more efficient system of work to improve the quality and meet the quantity of needed produce. In addition, social value is also created, not only for the firm but to the individuals as well who represent the firm which usually become parallel to the value of the firm to people. Professor Knight as mentioned by Coase says the relation between efficiency and size is one among the most serious problems (394), since in theory, the larger the size of a firm, the more effective it should be. Which is virtually true and most important if the fear of most economic theorists would be eliminated, that is, the tendency of a monopoly as the firm gets bigger and bigger. Size, at some extent could be beneficial to consumers when it comes to quality assurance but by far, it will be more damaging when it comes to pricing when it reaches a point when the firm monopolizes an industry. This is when competition would really be of a great help to the balance of the problem. With many competitors, high quality products would be produced and the size of firms would not become too large as to become a monopoly. What is your understanding of strategy? What is your definition? What is the purpose of strategic thinking? What, in your mind, are parallels and differences between strategic thinking and design thinking? Strategy is a systematic plan in accomplishing a goal wherein different aspects of the circumstance is carefully considered so as to limit consequences that would result to the failure of the plan. Jelen considers strategy in terms of the firm as the action plan that relates the purpose of value proposition to the goal of wealth creation (Complex information technology-intensive firms) looking into the enterprise, business and product. Strategy looks forward to accomplishing a goal for the consumers as the primary beneficiaries of the products and at the same time considering how the firm would earn profits with such an action. Strategy also considers not only the materials needed in the execution of the plan but also the needed skills and knowledge, their availability and the feasibility of the plan. It also looks into the pros and cons of the plan, always considering its primary objective, profit. In summary, strategy is a plan devised to be executed to achieve a set goal. Strategic thinking aims for efficient services, providing goods and services to consumers in a timely manner with less expense as unimportant actions or jobs are eliminated. It is the thorough consideration of the things to be done in order to improve the quality of services in order for the firm to grow and prosper. Strategic thinking, like design thinking requires a lot of considerations to be made usually concentrating on how to improve goods and services so as to attract more consumers. While the former focuses more on formulating highly effective ways to improve profit through a well laid out plan, design thinking moves on the artistic side. Not that one has to be artistic to be a design thinker, but in addition to strategic thinking, one allows his mind to venture into the uncommon goods and services. A strategic thinker, in my perception is one who executes his plan as carefully as he can, usually forming a pattern that could be predictable in its long employment, eliminating as much mistakes as he can. The design thinker on the other hand is more risky, trying new ideas where there is no certainty of its success in the market. If markets fail as often as they do, with as much expansive and expensive regulation applied, with as much accumulated knowledge, understanding and metrics about them as we have, why do you think that it is? And what is the future of markets and firms in the light of such ambiguity? Competition plays a vital role in the success and failure of markets. This may be the very reason why design thinking is now selling like pancakes as the latest model of cell phone is in the market. Competition opens as much opportunities to all. Likewise, the use of the net in the business world today opens many aspects of the media to be discovered for entrepreneurial purposes, gives a still shaky ground for ventures. It’s not that the net was just discovered yesterday, but that there are still so many problems with transactions done over the internet that need to be resolved. Despite all these, competition gets tighter each day with the fast discoveries of the use of the internet as a market place. On the other hand, despite the knowledge we gain as technology propels us to a better future, markets still fail because demands change as fast as users of the internet grow. Thus, production and innovation should speedily cope with the needs and wants of the consumers. Strategies, strategic and design thinking are all important in the success of a firm however, even means are being discovered to improve the competitive quality of a product. Take for instance design thinking which was not heard of when the use of cell phones were more of a need than a luxury. Today, this is an idea which is highly exchanged as people become more and more infatuated with the use of the latest design or model of cell phone there is in the market. As it is true with firms venturing into a new business where success is not definite, the use of the internet nowadays could be like that firm new in the industry. It could be shaky at first but once it has established a good number of satisfied consumers, in time, it could become an established market place. Works cited Coase, R. H. The Nature of the Firm. Economica, New Series volume 4 number 16. November 1937. Print. Lessig, Lawrence. The Laws of Cyberspace. April 3, 1998. Web. October 28, 2010. Jenel, Jonatan. Complex information technology-intensive firms - A new paradigmatic firm theoretical imperative! (Or a pragmatically impractical interpretation of the nature of the virtualized. n.d. Web. October 28, 2010. Read More