What is the term for operating an organization through agents?

The term that describes operating an organization through agents is known as the principal-agent relationship. This concept involves a scenario where one party (the principal) delegates authority to another party (the agent) to act on their behalf. In this dynamic, the principal relies on the agent to make decisions or take actions that align with the principal's interests.

This relationship is foundational in various business contexts, as it allows for specialization and efficiency. For instance, a business owner (the principal) might hire a manager (the agent) to oversee daily operations, trusting that the manager will act in the best interest of the business. The principal-agent relationship is essential for understanding issues of trust, delegation, and accountability in organizational settings.

In contrast, organizational structure refers to how a company arranges its operations and hierarchy. Franchising pertains to a broader business model where a franchisor licenses the use of its brand and operational model to a franchisee. Contract management involves the administration of contracts made with vendors, partners, or employees, which is a distinct process from the interpersonal dynamic defined by the principal-agent relationship.