Agency and Deterministic Approaches in Organisations

Running head: AGENCY AND DETERMINISTIC APPROACH IN ORGANISATIONS
Agency and Deterministic Approaches in Organisations
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AGENCY AND DETERMINISTIC APPROACH IN ORGANISATIONS
The theory of agency can be defined as the conception that human beings are capable of
original ideas and are capable of acting in a particular fashion. The theory also recognises that
human beings are capable of either acting or adaption to turn the effects of external environment
to their own advantages. The deterministic theory as opposed to agency theory, proposes that
human beings have no power to control or innovate. The theory further believes that external
environment controls the actions of human beings and that man has no control over his
environment. If the paradigm wars of the two theories are applied in case of the corporate
organisations, they come into play in a big way. The agency theory states that individuals can
control their actions which correspond to the internal environment of the organisations. The
deterministic theory speaks about uncontrollable and formidable external environment which can
be interpreted as the macroeconomic environment. External or macroeconomic environmental
environment impact the organisations and require them to form strategies to adapt to it. The
organisations form their internal policies or microeconomic environment which they control to
adapt to and take advantage of the external environment. Thus, it is possible to reconcile these
two theories because no organisation is beyond the effects of the external environment and again
all organisations make their own internal environment to use the external environment to their
profit. Hence, these two theories come together to form the universal organisational theories
which means organisation balance between these two theories.
The organisations are under the strong impact of the external world or environment
which decides every aspect and operations of them. To start with, organisations are totally
dependent on the external environment which corresponds to the deterministic theory. The
external environment is composed of political, economic, social, technological, environmental
and environmental summarised as PESTEL. The political factors like laws and policies are the

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determining factors of the corporate world. The factor is more prominent and crucial for the
international companies compared t their national and small scale alternatives. The laws formed
by the international bodies like the European Union and the national governments determine the
very strategies and policies framed by the companies. For example, companies have to frame
their policies according to the laws like taxation, labour and so on. The multinational companies
like Unilever and ThyssenKrupp have to abide by the export laws pertaining to free trade and
subsidies set by European Union while trading with the European countries. The European
airline companies can take advantage of the EU-India agreement to operate flights (ec.europa.eu
2017). It goes without saying that the laws formed by the governments and the international
bodies are not under the control of the organisations which correspond to the deterministic
approach. Air France the airline company of France operates flight services in India based on the
EU-India agreement but cannot spread it into other nations (Airfrance.com 2017). Thus,
organisations make internal policies to take advantage of the laws. Here, it can be opined that
organisations apply agency theory to deal with deterministic theory. The make innovative
products and services of their own to expand into countries confirming to the laws (Epstein and
Buhovac 2014). Thus the paradigm wars between these two theories make the organisations form
strategies to thrive in the market.
The companies are dependent on the external environment because they acquire materials
and labour from the communities, thus confirming to the deterministic approach. They acquire
raw materials from the supply chains in various countries. Unilever manufactures and markets
over hundreds of products like soaps, ice creams, tea, coffee, tooth pastes, food products and so
on. The company owing to its vast product line buys materials from a large number of suppliers.
The company maintains a high quality supply chain so that its products confirm to the

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requirements pertaining to the product quality and standard (Unilever global company website
2017). Failure to confirm to the material standards and requirements can have detrimental effects
of the market position of companies and lead to losses worth billions. Nestle, the largest
manufacturer and marketer of food products in the world owns the brand Maggi noodles. Maggi
is consumed by millions of people all round the world among which India is one of the leading
consumers. The test on Maggi found presence of harmful chemicals in the noodle products
which led to its ban in the country (The Indian Express 2017). The ban resulted in losses worth
billions of dollars and weakening of the market position of Nestle. The food giant in order to
counteract the losses ran advertisements and online campaigns to restore faith in the product
(Bhushan 2017). The first example, the ban on Maggi was an example of deterministic theory
because Nestle had no control over it. The advertisement campaigns run by Nestle exemplified
the attempt of the company to deal with the external change or the ban. Thus companies take
steps to deal with external impacts like government ban which proves deterministic and agency
theories coexist in the modern organisations.
The organisations obtain human resources from labour markets to commence their
operations. Their talented employees using their qualifications, skills and competencies perform
functions which earn them their market positions. The organisations should provide their human
resources legitimate compensations and facilities in return of their services (Lee and Kim 2014).
The laws and policies pertaining to the employment of human resources are formed by
government which are beyond the control of the organisations. The Fair Work Act 2009 governs
the employer and employee relationship in Australia. The act provides for minimum
compensation, flexible working hours and fairness of work opportunities to the workers in
Australia (Fair Work Ombudsman 2017). The act exemplifies deterministic theory because the

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companies have no control over the government but has to abide by it. They frame innovative
work policies for their employees to incorporate the act in their employment policies. Telstra, the
leading telecommunication company of Australian origin provides facilities like health benefits
and flexible working hours confirming to the act. Thus, it shows Telstra is following to agency
theory employee friendly policies to deal with the deterministic Fair Work Act 2009
(careers.telstra.com 2017). This discussion proves that organisations incorporate both the
theories to develop their own organisational theories.
Technology today plays crucial role in every aspect of the organisation and is dependent
heavily on external factors like available resources and financial conditions of the countries.
Adoption and diffusion of technology in organisations depend on the level of advancement
prevailing in countries, natural resources and several factors over which they have no control.
These factors impact their use of technology in production, operation and all other areas. The big
multinational companies can invest in technology to acquire modern machineries and softwares
to ease their operations. They over here can use their funds to acquire technology from the
outside world over which they cannot exercise control. They can also use their financial and
human resources to acquire them. Thus firms have no control over external environment and can
only acquire machineries to adapt to it. Big corporate giants like P&G and Microsoft can acquire
technology to bring about innovation in their products and ways of operations (Blomkvist,
Kappen and Zander 2014). The small companies cannot afford to acquire modern technology and
mass produce goods. Here it can opined that the scarcity of funds inhibit small companies from
inducing modern technology. Thus the discussion reveals that financial and resources strength
can be used to deal with external deterministic factors.

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This requires the companies to manage human resource, funds and technology to ensure
exploitation of external market. The companies apply various organisational theories in their
work environment to optimise their organisational culture. They have horizontal structures of
bureaucratic control which ensures efficient decision making machinery built after Weber’s
theory (Fukuyama 2013). They manage their employees scientifically and strategically after the
Taylor’s scientific management theory (Morse, Babcock and Murthy 2014). They divide their
total target into several parts which they distribute among the departments based on area of
expertise and specialisation. This division of labour follows the organisational theory by Adam
Smith and is aligned to the business goals of the organisations (Durkheim 2014). Thus the
companies combine strategies and organisational theories to control their resources to take
operate in efficient ways. They bring about innovations and researches to use their resources to
adapt to the external deterministic factors in the environment. For example, the companies carry
out continuous innovations and researches to introduce new products and improve the existing
ones to cater to the growing customer needs. The customers, materials and human resources are
not generated by the companies but the organisational structures and products are. The first three
are components of the specific markets which are not under the control of the companies. The
companies acquire these resources to gain competitive advantage in the market. Thus,
application of agency theory to develop or acquire resources helps them to deal with
deterministic environment. The companies develop universal organisations culture based on
several theories to suit their structures and business goals. Thus, organisational theories and
strategies are expressions of the agency theories which can be adopted to adapt to stand the
external environment challenges.

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The most challenging situation the organisations face from external environment is the
challenge to generate huge profit by operating in sustainable ways. The companies involved in
sectors like mining, manufacturing, energy production and construction provide the raw material
and support system to all other industries. They are among the highest revenue earning
companies in the world and come under strict supervision of national and international bodies.
They also generate high amount of pollutants during the course of the production which brings
them under the purview of environmental laws. These companies are investing hugely in
technology and infrastructures to shift towards sustainable and environment friendly production.
For example, Renault is concentrating on manufacturing vehicles using electricity as fuel to cut
down pollution caused by petrol and diesel smoke emission. The company is determined to
ensure ethical practices to ensure benefit of stakeholders like employees, shareholders and
society at large (Group.renault.com 2017). Thus, this example once again shows that the
companies can adapt their strategies and operations to deal with the impact of the external
market.
The macro environment represents the deterministic external forces over which the
companies have on power. The agency functions tell that organisations are capable of bringing
about innovation to deal with the external deterministic market. They develop their own business
models after the agency theory which help them to sustain the stiff competition (Chesbrough
2013). The competitive market experiences entry of new firms which challenge the existing
firms. The multinational companies acquire firms or enter into joint ventures to enter new
markets. This poses challenge to the existing companies but they cannot prevent the entry(Brush
2015). Wipro acquired heritage beauty cosmetic brand Yardley to enter the premium beauty
segments. The company manufactures after shave lotions and poses stiff competition to the

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existing brands like Axe by Unilever and Old Spice by P&G (The Times of India 2017). The two
companies namely Unilever and P&G are known for their deep understanding of changing
consumer needs. These two companies bring about new products and introduced better versions
of existing products to deal with threats from new entries. P&G owns two men accessories
brands, Old Spice and Gillette. The company under its brand Gillette introduces razors, shaving
creams and shaving creams having modern technology to provide superior comfort to the users
(News.gillette.com 2017). The above example clearly shows that companies introduce new
innovative products to deal with the threats from new companies and substitutes.
The above discussions list variety of impacts provided by the external environment over
which the organisations have no control like government laws and new emerging competitors.
These impacts represent the deterministic nature of the market which forces companies to adapt
to them. It can also be stated that the strategies formed by the companies to deal with these
impacts help the companies to suit the impacts. These strategies taken by the companies
correspond to the agency theory which upholds the power of the companies to form strategies
and innovation to thrive in the market. The companies form their unique business strategies
according to their organisation structures to create their own business models. Thus, the fact that
organisations form their own theories to balance the tow former theories is justified and proved.

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