Decision Making and Accounting Theories Business Owners Essay

Excerpt from Essay :

Decision Making and Accounting Theories

Business owners find that they always have to put on business hats when they are starting up or managing their businesses. However in business it is not the owners who are meant to make decisions only, decisions can also be made by employees. When classification of business decisions is done it is on the basis of how predictable that particular decision is. Programmed decisions are those that are straightforward, routine and repetitive. They can easily be dealt with by the creation of procedures and routines. On the other hand there are decisions that are unstructured and valid which do not require systems that are clear cut so as to be made. Those in business are often faced with various decisions which they have to make some of which are particularly important when it comes to the profitable existence of any business. Decisions result to success there is no successes that can be realized until a decision is made (Wicks, 2013).

People in business make so many decisions each day which include financial decisions, structure, strategic decisions, manpower decisions, operational decisions and many more. However, it is only once in a while that a leader makes a decision that is game changing which shifts not just a strategy of a single business but brings in a new perspective of how everyone else operates their business. Some of these business ideas are very powerful and have great impacts which are far reaching. Most of these big decisions are normally counterintuitive in that they go against the conventional wisdom. Therefore smart leaders end up being wise leaders when they have a foresight or are courageous enough to make decisions that are counterintuitive and unpopular. The paper will look at some important business decisions that have been made in recent will look at some of the factors that were taken into account before arriving at these will also look at the effects some of these decisions have on various stakeholders with reference to accounting theories.

Business decisions

When thinking of strategic decisions that are critical and have changed a company's course we often think of big bets or one time events that completely changed the direction or course of a company's history. These decisions guide not only immediate action but also actions in future. Some of the choices made in a particular decision end up inspiring future decisions. When we look at business decisions we can say that they are influenced by various factors. We are going to look at business decisions that are made based on two accounting theories; agency theory and stakeholders theory.

Agency theory

With agency theory the firm can be seen as a nexus of contracts between those who hold resources required in the agency relationship is created when one or more people who are principals go ahead and hire more people termed as agents to carry out some services and go ahead and delegate the authority to make decisions to these agents. Primary agency relationships that occur in business are between the managers and stockholders and between stockholders and situations where agency occurs it results to some agency costs which are termed as expenses that are incurred so as to maintain an agency relationship that is effective. This may include giving management performance bonuses so as to encourage managers to act in the interest of shareholders.

An example of a business decision made on the basis of agency theory is the decision by Wal-Mart to threaten its suppliers to gain promotional dollars. Wal-Mart launched an aggressive push to ensure that its marketers divert their marketing budgets and consumer media into the budget of the growing giant retailer and its marketing programs held in store through a simultaneous push for the clearance of their brands that were underperforming off their shelves as extra leverage. The threat which was implied for marketers who did not follow these demands for increased marketing funds is the increased risk of being delisted. This system being rolled out is termed as a cost-supplement initiative whereby markets and consultants in the industry say that it directs marketers to divert their money which is proportionate to their share of sales within marketing programs for the retailer. This means that Wal-Mart is not only looking to have a share in the funds for trade promotions but at the same time the consumer-ad dollars. Wal-mat wants funding for co-branded TV as well as other media advertisements, an in-store TV and banner ads on their website (Neff, 2009).

This is quite a bold decision when it comes to funds geared towards supplier's consumer marketing even if the money that is involved is so much. Honestly speaking, no major marketers have managed or even come close to reaching these demand that Wal-Mart has made. If they can manage this they would have to make a proportionate level of concessions with other retailers in the sense that they will be turning their whole marketing budgets to retail trade or they will be facing the risk of violation of the Robinson-Patman Act that requires manufactures to ensure that they treat their retailers equally or proportionately in any trade deals they are involved in. Wal-Mart has not been the first retailer wanting to grab the supplier's consumer-marketing budgets. These threats that has been implied who do not go along with the demands set for more funds in marketing is a high risk of delisting. Conversely, ponying up more dollars in marketing can help them save their space in the shelves of Wal-Mart stores (Neff, 2009).

Since agency relationships are inmost instances quite ambiguous and complex, agency normally carries with it various ethical problems and issues that concern both principals and agents. Therefore regardless of what Wal-Mart want to achieve from their decision they should ensure that any decision they make are ethical. They should not just go ahead and make decisions which they know very well will hurt the marketers in terms of finances even if they want to gain from that.

Stakeholder's theory

Stakeholders are a group of individuals who are affected or who can affect the process of achieving the objectives of the organization. Stakeholders can be customers, shareholders, employees, suppliers and the entire local community .the stakeholder's theory ensures that organizations are accountable to their stakeholders and ensure that they strike a balance when it comes to the interests of these stakeholders. The stakeholder's theory has three aspects which are instrumental power which creates a framework which checks the connections between stakeholders' management and the success of the performance of the organization. The second aspect is descriptive accuracy that describes the specific corporations behaviors .the third aspect normative validity is used for the interpretation of the company's purpose. This theory is quite closely related with social responsibilities which imply the social value of the corporation. This theory tries to ensure that ethics and economies go hand in simple term this theory advocates that organizations should ensure that they benefit all stakeholders and directors are usually accountable to the stakeholders. For the organizations to maximize their value they have to ensure that they put the interest of all the stakeholders of the organization at heart (Reynolds, Schultz, & Hekman, 2006).

The current CEO of Xerox Ursula Burns is very proud of the rich heritage and famous products which are produced by the the CEO she is not quite nostalgic about the past rather she is concentrating so much on building a new future for the company. She wants to avoid getting the organization into the trap that led to the collapse of Kodak. Some of the important decisions he has made in recent times include the outsourcing of manufacturing and cutting back or a complete elimination of marquee products. She is steering the company into new areas such as business process management. Since this is a digital era has decision has brought about a reinvention of Xerox as a provider for high tech solutions in the era (Kaipa, & Radjou,2013).we can say that the CEO of Xerox made this decision on the basis of the stakeholders theory. This is because she was looking at not only the organization but the stakeholders as well. The organization would benefit from this decision since it would cement itself in the world market and will not be at risk of failing. This means that the shareholders who are part of the stakeholders will benefit.

Other stakeholders who will benefit are customers. The customers will be provided with high quality products which will leave them satisfied. They organization from outsourcing of manufacturing means that they will be bale to produce enough products adequate enough to satisfy the needs of the customers. There are various factors that are usually taken into consideration before any decision in business is made. When we look at the first example of Xerox we can say that technological advancement played a role in the decision that was made by the CEO.…

Sources Used in Document:


Kaipa, P. & Radjou, N. (2013). 7 Business Decisions That Looked Bad but Turned Good. Retrieved August 27, 2013 from

Wicks, D. (2013). Top 5 Biggest Decisions Business Owners Make. Retrieved August 27, 2013 from

Krippendorff, K. (2013). The Greatest Business Decisions of All Time. Retrieved August 27, 2013 from

Kruse, K. (2013). The Top 5 Business Decisions of All Time. Retrieved August 27, 2013 from

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