Purpose of an Organization

Purpose of an Organization

The Shareholder Value movement postulates a clear purpose of a private company: to generate profit and to maximize the value of the company itself. This thinking became very influential in the 1970s and 1980s and today is seen as one of the main causes for the ongoing financial crisis and financial imbalances.

System-oriented management approaches argue that companies have to be seen as any other organization. The purpose of an organization cannot refer solely to itself but has to be seen in the context of its environment.

Jurgen Appelo, author of Management 3.0, has found a nice formulation for the purpose of an organization which is based on systems theory:

“… an organization is a network of clients and stakeholders who collaborate to produce value for everyone involved.”

What does this mean for daily business?

Depending on their approach and their understanding of the purpose of their organizations, behavior and decisions of managers differ seriously:

Shareholder Value Thinking in comparison

Tab: Managers’s behavior according to their understanding of purpose of organization