A managerial economist can play
a very important role by assisting the management in using the increasingly
specialised skills and sophisticated techniques, required to solve the
difficult problems of successful decision-making and forward planning. In
business concerns, the importance of the managerial economist is therefore recognised
a lot today. In advanced countries like the USA, large companies employ one or
more economists. In our country too, big industrial houses have understood the
need for managerial economists. Such business firms like the Tatas, DCM and
Hindustan Lever employ economists. A managerial economist can contribute to
decision-making in business in specific terms. In this connection, two
important questions need be considered:
- What role does he play in business, that is, what particular management problems lend themselves to solution through economic analysis?
- How can the managerial economist best serve management, that is, what are the responsibilities of a successful managerial economist?
Role of a Managerial Economist
One of the principal objectives
of any management in its decision-making process is to determine the key
factors, which will influence the business over the period ahead. In general,
these factors can be divided into two categories:
- External
- Internal
The external factors lie outside the
control of management because they are external to the firm and are said to
constitute business environment. The internal factors lie within the scope and
operations of a firm and hence within the control of management, and they are
known as business operations. To illustrate, a business firm is free to take
decisions about what to invest, where to invest, how much labour to employ and
what to pay for it, how to price its products, and so on. But all these
decisions are taken within the framework of a particular business environment,
and the firm’s degree of freedom depends on such factors as the government’s
economic policy, the actions of its competitors and the like.
Environmental Studies of a
Business Firm
An analysis and forecast of
external factors constituting general business conditions, for example, prices,
national income and output, volume of trade, etc., are of great significance
since they affect every business firm. Certain important relevant factors to be
considered in this connection are as follows:
- The outlook for the national economy, the most important local, regional or worldwide economic trends, the nature of phase of the business cycle that lies immediately ahead.
- Population shifts and the resultant ups and downs in regional purchasing power.
- The demand prospects in new as well as established markets. Impact of changes in social behaviour and fashions, i.e., whether they will tend to expand or limit the sales of a company’s products, or possibly make the products obsolete?
- The areas in which the market and customer opportunities are likely to expand or contract most rapidly.
- Whether overseas markets expand or contract and the affect of new foreign government legislations on the operation of the overseas plants?
- Whether the availability and cost of credit tend to increase or decrease buying, and whether money or credit conditions ahead are likely to easy or tight?
- The prices of raw materials and finished products.
- Whether the competition will increase or decrease.
- The main components of the five-year plan, the areas where outlays have been increased and the segments, which have suffered a cut in their outlays.
- The outlook to government’s economic policies and regulations and changes in defence expenditure, tax rates tariffs and import restrictions.
- Whether the Reserve Bank’s decisions will stimulate or depress industrial production and consumer spending and how will these decisions affect the company’s cost, credit, sales and profits.
Reasonably accurate
data regarding these factors can enable the management to chalk out the scope
and direction of their own business plans effectively. It will also help them
to determine the timing of their specific actions. And it is these factors,
which present some of the areas where a managerial economist can make effective
contribution. The managerial economist has not only to study the economic
trends at the micro-level but also must interpret their relevance to the
particular industry or firm where he works. He has to digest the ever-growing
economic literature and advise top management by means of short, business-like
practical notes. In mixed economy like that of India, the managerial economist
pragmatically interprets the intentions of controls and evaluates their impact.
He acts as a bridge between the government and the industry, translating the
government’s intentions and transmitting the reactions of the industry. In
fact, the government policies emerge out of the performance of industry, the
expectations of the people and political expediency.
Business Operations
A managerial economist can also
be helpful to the management in making decisions relating to the internal
operations of a firm in respect of such problems as price, rate of operations,
investment,
expansion or
contraction. Certain relevant questions in this context would be as follows:
·
What
will be a reasonable sales and profit budget for the next year?
·
What
will be the most appropriate production schedules and inventory policies for
the next six months?
·
What
changes in wage and price policies should be made now?
·
How
much cash will be available next month and how should it be invested?
Specific Functions
The managerial economists can
play a further role, which can cover the following specific functions as
revealed by a survey pertaining to Brittain conducted by K.J.W. Alexander and
Alexander G. Kemp:
- Sales forecasting.
- Industrial market research.
- Economic analysis of competing companies.
- Pricing problems of industry.
- Capital projects.
- Production programmes.
- Security / Investment analysis and forecasts.
- Advice on trade and public relations.
- Advice on primary commodities.
- Advice on foreign exchange.
- Economic analysis of agriculture.
- Analysis of underdeveloped economics.
- Environmental forecasting.
The managerial economist has to gather economic data,
analyse all relevant information about the business environment and prepare
position papers on issues facing the firm and the industry. In the case of
industries prone to rapid theological advances, the manager may have to make
continuous assessment of tl1e impact of changing technology. The manager' may
need to evaluate the capital budget in the light of short and long-range
financial, profit and market potentialities. Very often, he also needs to
prepare speeches for the corporate executives. It is thus clear that in
practice, managerial economists perform many and various functions. However, of
all these, the marketing functions, i.e., sales force listing an industrial
market research, are the most important.
For this purpose, the managers may collect statistical
records of the sales performance of their own business and those rehiring to
their rivals, carry out analysis of these records and report on trends in
demand, their market shares, and the relative efficiency of their retail
outlets. Thus, while carrying out heir functions, the managers may have to
undertake detailed statistical analysis. There are, of course, differences in
the relative importance of· the various functions performed from firm to firm
and in the degree of sophistication of the methods used in performing these
functions. But there is no doubt that the job of a managerial economist
requires alertness and the ability to work uriderpressure.
Economic
Intelligence
Besides
these functions involving sophisticated analysis, managerial economist may also
provide general intelligence service. Thus the economist may supply the
management with economic information of general interest such as competitors
prices and products, tax rates, tariff rates, etc.
Participating
in Public Debates
Many
well-known business economists participate in public debates. The government
and society alike are seeking their advice and views. Their practical
experience in business and industry adds prestige to their views. Their public
recognition enhances their protégé in the .firm itself.
Indian
Context
In the
Indian context, a managerial economist is expected to perform the following
functions:
· Macro-forecasting for demand and supply.
· Production
planning at macro and micro levels.
· Capacity
planning and product-mix determination.
· Economics
of various production lines.
· Economic
feasibility of new production lines / processes and projects.
· Assistance
in preparation of overall development plans.
· Preparation
of periodical economic reports bearing on various matters such as the company's
product-lines, future growth opportunities, market pricing situation, general
business,. and various national/international factors affecting industry and
business.
· Preparing
briefs; speeches, articles and papers for top management for various chambers,
Committees, Seminars, Conferences, etc
Keeping
management informed of various national and
International Developments on economic/industrial
matters.
With the adoption of the new economic policy, the
macro-economic environment is changing fast and these changes have tremendous
implications for business. The managerial economists have to playa much more
significant role. They ha'1e to constantly measure the possibilities of
translating the rapidly changing economic scenario into workable business
opportunities. As India marches towards globalisation, the managerial
economists will have to interpret the global economic events and find out how
the firm can avail itself of the various export opportunities or of establishing
plants abroad either wholly owned or in association with local partners.
Responsibilities
of a Managerial Economist
Besides
considering the opportunities that lie before a managerial economist it is
necessary to take into account the services that are expected by the
management. For this, it is necessary for a managerial economist to thoroughly
recognise the responsibilities and obligations. A managerial economist can
serve the management best by recognising that the main objective of the
business, is to make a profit on its invested capital. Academic training and
the critical comments from people outside the business may lead a managerial
economist to adopt an apologetic or defensive attitude towards profits. There
should be a strong personal conviction on part of the managerial economist that
profits are essential and it is necessary to help enhance the ability of the
firm to make profits. Otherwise it is difficult to succeed in serving
management.
Most management decisions necessarily concern the future,
which is rather uncertain. It is, therefore, absolutely essential that a
managerial economist recognises his responsibility to make successful forecast.
By making the best possible forecasts and through constant efforts to improve,
a managerial' ng, the risks involved in uncertainties. This enables the
management to· follow a more orderly course of business planning. At times, it
is required for the managerial economist to reassure the management that an
important trend will continue. In other cases, it is necessary to point out the
probabilities of a turning point in some activity of importance to management.
In any case, managerial economist must be willing to make fairly positive
statements about impending economic developments. These can be based upon the
best possible information and analysis. The management's confidence in a
managerial economist increases more quickly and thoroughly with
a record
of successful forecasts, well documented in advance and modestly evaluated when
the actual results become available.
A few
consequences to the above proposition need also be emphasised here.
· First, a
managerial economist has a major responsibility to alert managelI1ent at the
earliest possible moment in' case there is an err6r' in his forecast. This will
assist the mallagement in making appropriate adjustment in policies and
programmes and strengthen his oWn position as a member of the management team
by keeplrighis fingers on the economic pulse of the
business.
· Secondly,
a managerial economist must establish and maintain many contacts with
individuals and data sources: which would not be immediately available to the
other members of the management. Extensive familiarity with reference sources
and material is essential. It is still more important that the known
individuals who are specialists in particular fields have a bearing on tpe
managerial economist's work. For this purpose, it is required that managerial
economist joins professional associations and tak~ active part in them. In
fact, one of the best means of determining the quality of a managerial
economist is to evaluate his ability to obtain information quickly by personal
contacts rather than by lengthy research from either readily available or
obscure reference sources. Within any business, there' may be a wealth of
knowledge and experience but the managerial economist would be really useful
ifit is possible pn his part to supplement the existing know-how with
additional information and in the quickest possible manner.
Again, if a managerial economist is to be really helpful
to the management in successful decision-making and forward planning, it is
necessary'" to able to earn full status on the business team. Readiness to
take up special assignments, be that in study teams, committees or special
projects is another important requirement. This is because it is necessary for
the managerial economist to win continuing support for himself and his
professional ideas. Clarity of expression and attempting to minimise the use of
technical terminology while communJcating his ideas to management executives is
also an essential role so as to win approval.
To conclude, a managerial economist has a very important
role to play by helping management in successful decision-making and forward
planning. But to discharge his role successfully, it is necessary to recognise
the 'relevant responsibilities and obligations. To some business executives,
however, a managerial economist is still a luxury or perhaps even a necessary
evil. It is not surprising, therefore, to find that while tneir status is
improving and their impor;ance is gradually rising, managerial economists in
certain firms still 'feel quite insecure. Nevertheless, there is a definite and
growing realisation that they can contribute significantly to the profitable
growth of firms and effective solution oftMir problems, and this' promises them
a positive future.
