Question

In: Economics

Today's Global Economy is very top-down driven with the government making all the decisions and regulations...

Today's Global Economy is very top-down driven with the government making all the decisions and regulations as it relates to doing business globally. What are some advantages and disadvantages to this approach? Is there another approach that might work better?

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Expert Solution

A top-down approach in business describes a traditional organizational style that emphasizes the imperatives and vision of top management. Company guidelines and objectives flow from the top to the subordinates below. Many small companies typically use the top-down approach as they are capable of having just two layers: owners and staff.

Top-down institutions do not involve subordinates in the planning process. Instead, the owner develops vision , mission, strategic goals and strategies for the organization and then communicates them to the ranks below. The front line translates objectives into daily action in order to achieve the desired results. It is important for owners to remember that a strategic course can not be chosen properly without building on the firm's accumulated experience; first-hand knowledge of subordinates helps to ensure sound objectives and plans. This bottom-up context in the preparation of a budget plan , for example, helps the owner to incorporate practical information that might have been neglected.

Advantage:

The top-down approach unifies a company behind one purpose, direction, command and standard, dictated from above and spread throughout the organization. This offers several advantages. It allows a business to reliably give customers the same experience or product. Standardized products and services can be rolled out on a grand scale and more cheaply than non-standardized goods, and standardization facilitates quality control. Unity of command, meanwhile, allows a company to avoid confusion in a crisis. With its clear lines of authority, the top-down approach encourages obedience.

Disadvantage:

By stressing management, the top-down approach de-emphasizes staff who have become passive. Without control, there is little room for initiative or creativity. As approvals have to climb the chain of command, top-down companies are slowly responding to market challenges. In an unpredictable or dynamic environment, a top-down approach can not keep pace with nimble team-based rivals and employee empowerment.

Alternative:

The analysis from the bottom up takes a completely different approach. In general, the bottom-up approach should concentrate its study on the basic characteristics and micro attributes of the individual stock. The emphasis on bottom-up investment is on business-by-business or sector-by-sector fundamentals. This analysis seeks to identify profitable opportunities through the idiosyncrasies of the attributes and valuations of the company in relation to the market.

Personal viewpoint:

Top-down approach is a better method for global business-related decisions and regulations, because that means power vests with the government to take decisions that are beneficial to the country. This method also gives efficient outputs because governments would have a better understanding of the condition of the world market and there would be experts helping the government in this matter and can therefore make the right decisions and regulations. However, there is a question of biasing or corrupting policy and taking decisions in favor of individuals. These decisions will impact the economy as well as other business companies that are seeking to do business internationally.

It is therefore best to have an approach in which the government takes decisions in the presence of a team formed by various business experts and scholars, taking their opinions and ideas. This approach would provide the best decisions and regulations.

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