Organizational health can be measured by two popular theories.
First theory is ‘Wealth Maximization’ theory. Organizational growth can be the function of many decisional areas e.g. company can concentrate either on increasing profits or on increasing market share. Wealth maximization theory would lead to social welfare because every dollar invested in the business would generate more than one dollar considering the perpetuity of the business. Wealth maximization would lead to social welfare when there would not be monopolies in the market. State has an important role to play in this context. Among various independent variables for organizational growth equation, the firm would better grow by concentrating on one variable. By this manner the firm would be able to reach at optimal level with respect to that function.
For investments oriented towards future trade-offs, the firm should expand output and investment to the point where the market value of the firm is at a maximum.
Second theory is the ‘Stakeholder theory’. According to this theory, the organization’s objective is to take care of vested interests of promoters, managers and share holders. However this theory may not work for long term organizational growth. This theory contains no conceptual specification of how to make trade-offs among stakeholders that must be made. This theory gives unfettered power to managers to do almost whatever they want and provokes them to satiate their bottomless pit of avaricious greed at the expense of long term organizational growth. Repercussions of this theory would be reduction in social welfare.
The wise strategy to check organizational health lies in adopting enlightened value maximization and enlightened stakeholder theory. In enlightened value maximization the organization would create its vision and strategy. All these critical functions are the parts of strategy of any organization. The organizations should look for long term benefits rather than showing short term financial carrots to the employees. This may work the other way round in the long term.
In enlightened stakeholder theory, the objective would not just be creating money but also good relationship with the employees and managers. The objective here would be to create value on long term.
