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In today’s globalised world, with the increase in complexity and competition, the task of manager is also becoming increasingly complex and diversified. Today, the business prospects are influenced by not only the events of a particular industry but also by the events of other industries in the country as well as in the world. As already seen, a financial crisis in United States affected the business in India. In an interconnected world, when a manager is expected to lead the respective organization to new height with the limited resources, study of economics will definitely prove instrumental in accomplishing the task as Lionel Robbins had already defined economics as a science that deals with the study of human behavior as a relationship between ends and scarce means which have alternative uses.
Thus there is a definite synergy between economics and tasks of a manager. Increasing the wealth of the company, ensuring the welfare of employees, growth of company are few of the many responsibilities of a manager. Economic theory is holistic in nature and its applications are very useful for managing these responsibilities.
The marketing strategy of a company differs in different market condition. For instance, if company is monopoly in the market, its strategy will be different from that of a company operating in perfect competition or in oligopoly market. To understand how these markets operate, their characteristics and mechanism, knowledge of economics is an essential prerequisite and good understanding of economics will enable the manager to devise a better marketing strategy. Apart from this, understanding of Law of demand and supply are essential for a manager in any industry because without the knowledge of demand or supply of a particular product, appropriate strategy cannot be devised. Further, analysis of the movement of demand, factors responsible for the particular movement of demand will be helpful in determination of prices and the quantity produced.
Success of a manager is tested by his decision making in a particular situation. Right decisions at right time with appropriate planning are the important landmarks in the success story of a manager. Many economic tools provide the objectivity to these decisions and therefore their understanding for a manager cannot be ignored. Game theory, cost-benefit analysis etc, to name a few among many econometric tools must be analyzed before arriving at a decision. Before the launch of new product, its cost, likely benefits from its marketing, reaction of competitors, change in the market scenario etc are essential to know to assure the success of the product. Economic theory provides valuable insight into all these requisites and its knowledge will better enable the manager to analyze the likelihood of success or failure of the product launch.
Role of economics become more important in case of financial sector. Finance sector is most vulnerable to the vagaries of market and also, growth of finance sector directly affects the other sectors like industry, services also. Manager of a finance company like bank, insurance or finance institutions have to know the intricacies of financial economics. Relationship between bond prices and interest rates, money supply and its impact on credit growth, monetary policy and their likely impacts are few topics included in the subject matter of subject economics and are essential for the appropriate planning of the growth of financial company.
A manager with good knowledge and understanding of macroeconomic trends can take decisions with bird eye view. Concepts like inflation, employment, investment functions, consumption function, and rate of interest, demand and supply of money, efficiency of capital and interrelation of these concepts will certainly provide an edge to the holder of these understanding. A close perusal on the trends of above mentioned variables also gives the insight of their interrelationship. For example if inflation is on rise due to demand side factors, one can expect rise in profits but to it is also likely that Reserve Bank will hike the rate of interest to curb the menace of inflation and cost of capital and other inputs may rise in the future. Therefore one may look to build up the inventory in advance to reduce the cost of production as in future, cist of inputs is likely to increase. Further, trend analysis also helps in devising the strategy which will ensure the future growth.
Knowledge of economics also guides a producer who is looking for product diversification. For instance, Engel’s Law states that with the rise in income of a consumer, the proportion of expenditure on necessities like food decreases while that on luxuries increases. Thus when the national income of a country increases, manager can rightly guess about the choices of product diversification. A manager who operates with global vision must understand the mechanism of international trade. One must have an idea of how domestic and external demand affects the export prospects, impact of exchange rate fluctuations on the global revenues of the company etc to plan the growth of the company with a global vision.
From the operation point of view, distribution theory is also of immense relevance. Distribution theory includes theory of profit, theory of wages, theory of interest rate, theory of labor supply, theory of rent etc and their understanding enables the manager to manipulate the internal policies in such a manner that will bring out the best outcome. Economic theories on human resources, importance of research and development in the prospects of company revealed that expenditure on development of human resources and R & D are in fact are not the expenditure but the investment and empirical evidences prove that they ensure huge returns in future. An insight of welfare economics will make a manager to initiate a policy change in such a, manner which bring the maximum welfare to the organization.
Economics is one of the most applied disciplines and its application in an organization has the potential to ensure the long term growth of the company with minimum costs. Curriculum of Economics is holistic in nature and its applications in the organization make the organization more efficient by positively affecting its micro as well as macro and short term as well as long term perspective.
For such topics of Basic understanding on the subject matter which will keep you motivated to clear GD and would also be useful for WAT, Extempore speaking.