MANAGERIAL ECONOMIST: ROLE AND RESPONSIBILITIES

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:

1. What role does he play in business, that is, what particular management problems lend themselves to solution through economic analysis?
2. 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.