A Business Management Theory is akin to the general concept of management which refers to directing and controlling a group of people for the achievement of a collective objective which is beyond the scope of individual effort. A Business Management Theory is a study of the principles and practices of a business to attain its desired organizational goals conducting effective management. Business Management Theory is a range of approaches including the principles of accounting, public relations, operations, labor relations, time management, investment and corporate governance to improve the performance of a business in some measurable or otherwise provable manner. Business management theory encompasses the deployment and manipulation of human, financial, technological and natural resources and their effective allocation for the optimum level of output for the business.
Business management theory is closely related with the concept of business management strategy and it deals with the steps that are taken by the collective decision of the managerial authority of the business as well as the workers for the attainment of the desired objective. It should be noted in this context that decision-making plays a key role in the process of management which rests on the principles of planning, organizing, directing and controlling in the business. While planning and organizing deals with strategically formulating the long term goals the business seeks to attain which is generally taken by the top level management of the company, the operational business processes involving the day-to-day activities of the business is also a part of business management theory. Controlling refers to the evaluation of the performance towards the desired objective; directing, being a part of the business management theory refers to the supervision such that the workers work towards the accomplishment of organizational goals.
Business management theories undergo testing in the real world circumstances and the theories are continuously evaluated and evolutes after every 5-10 years. One of the major cornerstones of the modern business management theory is the theory of games, otherwise considered to be branch of economic analysis.
In the last twenty five years game theory has addressed some of the key issues related to antitrust analysis and monetary policy, the design of auction institutions to patent wars to dispute resolutions between warring business firms. Game Theory is now being incorporated into business management theory which gives a meaningful insight into the way business decisions can be modeled and analyzed. Business management theories covering the issues of finance, accounting, strategies and organizational design can be dealt with in detail by applying the principles of game theory or industrial organization. The specific application areas of the theories of business management including market competition, bargaining, competitive bidding to auctions involving the situation where a number of economic agents in pursuit of their respective self interests take actions is a fundamental area of concentration of game theory.
Game theory proves to be a compelling guide for any business strategy even in the case of imperfect markets where cooperative and non-cooperative game theoretic approaches can be used. The “balance of power” between the firm, its buyers and suppliers is what makes it a basic tool for understanding business management theory and strategy which are basically the all inclusive steps that the businesses should follow to attain its long-term objectives so as to achieve the highest rates of growth and profits in the long run. As already mentioned, business strategy based on the industrial organization approach is based on economic theory and deals with issues such as competitive rivalry, resource allocation and the economies of scale. Strategy formulations mainly include self evaluation and competitor analysis which determines the objectives and the planning strategies are devised according to them.