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Group 6 Section D (11P185, 11P193, 11P194, 11P209, 11P235, 11P237) Page 1

THE THEORY OF THE BUSINESS

Theory of Business has 3 parts

1) Assumption about environmentofbusiness:society anditsstructures,market,customers andtechnologyi.e. whatisorganizationispaidfor

2) Assumption aboutmissionofthe organizationi.e.pointtohow it envisionsitselfmaking adifference inthe economy andinthe society atlarge

3) Assumption aboutcore competencyrequiredto achieve the goalsi.e. where anorganizationmust excelinorder tomaintainmarketleader

Specification of a valid theory

1) Assumption about environment,mission andcore competencymustfitinreality2) The assumptionin allthe three area mustfit withone another3) The theoryoforganizationmust be known andunderstood by everyone inthe organization4) The theoryofthe businesshasto be testedconstantly

Everytheory becomesobsolete/invalid atsome pointoftime. The firstreactionoforganizationof

whose theoryhas become invalidisdefensive one andnext attemptistopatch. Butpatchingnever

work anditstime tostartthinking again and ask questionthat which assumption aboutthe

environment,mission andcompetencyreflectsrealtymost accurately.

Thenthere isneedforpreventive care,followed by earlydiagnosis andfinallythere is a needtorethink

a theorythatisstagnating andtotake effective actioninordertochange policies andpractices.

Preventive Care

1) Abandonment: everythree years, anorganizationmustchallenge everyproduct,service,policywiththe questionthat Ifthey were notinit already willthey would be goingnow? Thisforces

organizationto questionitstheory andtestsits assumptions.

2) Noncustomers:tostudy whatgoesoutside the business andparticularlytostudynoncustomers.Thisis because majorityofthe buyersinthe market are noncustomers

Early Diagnosis

Todiagnosisproblems earlyorganizationmustpay attentiontofollowingsign

1) Theory becomesobsolete when anorganization attendsitsoriginalobjective2) Rapidgrowth3) Unexpected Success whether onesownor a competitor4) Unexpected Failure whether onesownor a competitor

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Group 6 Section D (11P185, 11P193, 11P194, 11P209, 11P235, 11P237) Page 2

Cure

Hard work andconscientious by CEO leadtoturnaround andtheyfollow followingsteps

1) Start withdiagnosis and analysis2) Acceptthat attainingobjectivesrequiresrethinkingofthe business3) Dismissunexpectedfailure assystemfailure andnot assubordinate incompetent4) Nottake creditforunexpectedsuccess buttreatit as a challenge fortheir assumption5) Acceptingthattheorysobsolescence isdegenerative