Much like Physics, Economics is one of those subjects whose laws influence your day-to-day activities without you even being aware of it. Like the law of gravity, you adhere to the laws of demand and supply. Having said that, many people get by their lives without actively bothering to understand either gravity or the economy. As long as they know better than to jump down the balcony, and to not invest in Greek sovereign bonds, they’ll survive.
But that’s not the case with people belonging to certain professions. An engineer, for example, cannot work without understanding physics. Likewise, a manager cannot do his job without understanding Economics. Wondering why? Let me explain.
Common sense
Management is essentially all about making decisions, and Economics is one of the tools that facilitate decision making. Right from major moves such as marketing a new product, to regular responsibilities such as analysing sales revenues accrued in a month, all of a manager’s duties require an understanding of the basic principles of Economics.
Saurav Guhathakurta, Associate Director at TNS Research International, UK, feels that Economics is almost like common sense. He says that like any rational being, a manager yearns to continue and succeed, and this is not possible without being alert about the market forces, competition, the resources available and their best uses. Even though they may not appear so, all these components of management are, in theory, branches of Economics.
Broadening your perspective
According to Prof. Anindya S. Chakrabarti of IIM Ahmedabad, learning Economics not only gives you theoretical and empirical skills to find patterns in economic data, but it also enables you to have a broader vision of the economic reality and helps you make sense of the conflicting versions of economic and social spheres. A solid grounding in both Macro as well as Micro economics is essential for the manager.
Prof. Chakrabarti cites the example of a CEO of a company entertaining the possibility of expanding her business to a foreign country. She needs to have a fair idea of the macro economic conditions prevailing in that country, including its labour laws, inflation rates, etc. Indeed, to successfully run a medium-to-large scale business, one needs to be well-aware of the present macro economic conditions in the domestic economy itself.
On the other hand, Micro economics teaches you important aspects about the firm such as its cost structure, and the intricacies of the market, including the various kinds of markets, how firms compete with each other in them and survive.
Sandhya Maria, an alumna of VIT’s Business School, tell us that her understanding of Economics has helped her excel in her course as the case studies she undertook required a sound understanding of how the economy functions in order to have a holistic picture. Sandhya learned the subject as part of her MBA curriculum, apart from doing her Bachelor’s degree in Economics.
Surprisingly useful
Some have the misconception that learning Economics is more important for certain areas of management, such as finance, as opposed to a field like Human Resources. However, experts tell us that this is not the case. Successful management of any aspect of a company requires a holistic understanding of social and economic reality, so the knowledge of Economics is as important as that of organisational behaviour or data analysis for managers in all fields.
For example, Behavioural Economics gives important insights that can be leverage while marketing and in communication strategies. The irrational tastes and fetishes of the so-called rational consumers are exploited by marketers when they understand human behaviour, as is the case when companies market expensive branded goods knowing that the premium adds value to the product in the consumer’s mind, without a scientific basis to it.
VIT’s Sandhya, who is now working at ITC Infotech, Bangalore, as part of the recruitment team, says that even if she may not need to directly apply Economics in her professional life, she still finds it useful to make basic investment decisions.
Hence, B-Schools like IIM Ahmedabad offer Economics as a core course to their management students, along with subjects such as finance. The course content is fairly rigorous one is told.