The Six Sigma Handbook, Revised and Expanded, 2nd Edition

Preface

First, a basic question: just what are organizations anyway? Why do they exist? Some experts believe that the reason organizations exist is because of the high cost of executing transactions in the marketplace. Within an organization we can reallocate resources without the need to negotiate contracts, formally transfer ownership of assets, and so on. No need for lawyers, the managers do things on their own authority. The question is: how should they do this? In the free market prices tell us how to allocate resources, but prices don't exist inside of an organization. We must come up with some alternative.

Transaction costs aside, organizations exist to serve constituencies. Businesses have shareholders or private owners. The equivalent ...