Behavioural theories:

The behavioural theories of the firm started developing during the 1950s. One important model in these as developed by Cyert and March originated from the concern about the organisational problems cropping up from the internal structure of the firms and the need to investigate their effect on the decision-making process. In this theory, a firm is conceived as a coalition of different groups, which are connected with its activity in various ways: managers, workers, shareholders, customers, suppliers, bankers, tax inspectors and so on. Each group has its own set of goals or demands.  

The demands of various groups of the coalition-firm change continuously over time given the limited resources of the firm. In any period, all demands confronting the top management cannot be satisfied. Hence, there is a continuous bargaining process between the various members of the coalition-firm and inevitable conflict. Generally, the means for resolution of conflicts are money payments.

The goals of the firm are set by the top management, which can be seen in five groups viz.,

(1) production goal 

(2) inventory goal

(3) sales goal

(4) share-of-the -market goal

(5) profit goal.

Decisions are taken at various levels of the administration (or hierarchy), given the goals, and the available resources. The allocation to various departments is decided by the top management. Once the budget-shares are allocated, each manager spends them on her department at her own discretion. This involves the decision process at lower levels of administration.