business organization

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A business organization is one or more businesses controlled in common by a person or group of people. An organization may have one or more businesses. A business may not have more than one organization. Even in the case of franchises, the franchisor is a different business model than the franchisee, even though they exist symbiotically in the same value system. The contractual relationships that bind them differ significantly from the employer-employee relationship that exists within the organization. Business and organization are inseparable. They are simply two aspects of the one thing. For example, note the impact of culture (organizational DNA) on business success or failure. Therefore, business and organization are melded together into business organization as the subject of strategy and strategic management.

Why business organizations exist
Business organizations form to minimize transaction costs over the transactions costs of a network of freelance contractors. The firm eliminates at least two costs it would have if it instead used the price mechanism to ""organize"" production: (1) discovering what relevant prices are, and (2) the costs of negotiating and concluding a separate contract for each exchange transaction. This includes the cost of incomplete contracts and ""hold-up"" problem of a unique asset owner threatening to back-out unless they get a better deal. (Coase, 1937)

Organizations are a vehicle for collective learning, providing a collective storehouse of wisdom, capabilities, and business model designs. (Beinhocker, 2006)

An organization exists for a purpose. Hopefully for a moral purpose, or ideal, that is never fully achieved. The organization's pursuit of its purpose requires a structure for cooperation to endure for long periods of time, beyond the people's tenure in the organization. Enduring beyond the tenure of individuals enables more effective pursuit of purpose, with more complex business models, than could be attained if all people were freelance contractors.

Objective of business organizations
""...the living company exists primarily for its own survival and improvement: to fulfill its potential and to become as great as it can be."" (de Geus, 1997)

To endure (Wheatley, 2005, pp 73). If organization does not have endurance as a guiding principle, the organization members will not be inspired to invest themselves in perpetuating it. Members commit to organizations to the degree organizations commit to them. An organization's long-term commitment releases member's energy and creativity with the inferred promise of long-term engagement and rewards.

Nature of business organizations
Recognizing that organizations are not machines, but complex self-organizing systems, the principles and methods for effective management, leadership, and change do not fit the command and control model that has been so prevalent in much of management training and practice. See self-organization.

Business organization design
The flip-side of strategy is business design. The strategy is the actions and their objectives while the business organization design reflects the intended result of those actions. Business design serves both as a stimulus to strategy development, strategy validation, and the design itself, as a documentation of the hypotheses of the strategy.

Given that competitive advantage is temporal, business organizations must be continually redesigned and transformed in order sustain advantage. In order to develop an effective design process, the essential attributes of the business organization must be identified. From systems science we find that a business organization best fits what is described as a social system. The construct of a social system provides the basis for legitimate inquiry of a business organization.