How business decisions reflect agency theory and stakeholder theory

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 times.it will look at some of the factors that were taken into account before arriving at these decisions.it 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.

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 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 company.as 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. First of being a digital era it means that a lot of advancement has taken place in the digital world. This means that Xerox have to ensure that they are relevant and their presence is felt in the world. Secondly there was a company Kodak which was in existence before Xerox and it failed. Therefore another force that drove the decision to be made is that the CEO did not want Xerox to fall in the same trap that Kodak fell which saw its collapse. Another driving force was making the company more competitive. This is through outsourcing manufacturing and eliminating marquee products. Diversification was also a driving force that saw the CEO wanting to move the organization into new areas. Through all these forces Xerox made its presence felt in the market and is now known as a result to the decision that was made by the CEO.