Monthly Archives: July, 2012

Types of Communications

Self-Action or One-Way Communication

This kind of communication is focused in getting the message to the receiver, it is very message centric. Self-action treats communication as a manipulation of others. There is no way to know if the meaning is shared between the sender and the receiver.



Interaction or Two-Way Communication

This approach recognizes the role of the receiver as a communicator through feedback. It is message centered and is a very simplistic view of the communication process. Feedback allows senders to see if their message got across.




This approach focuses on meaning and sharing by accounting for all other factors in the communication process. It is concerned with the barriers that might affect the communication. Transaction is best described as effective communication. This is when the communication process is applied and carried out completely. The sender gives a message that is passed on to the receiver. In return, the receiver can give clear feedback that allows the sender to know whether or not the message was perceived as intended. If the message wasn’t received as intended, then the sender will continue the communication process again in order to ensure effective communication.


Characteristics of Managerial Economics

1. Microeconomics

It studies the problems and principles of an individual business firm or an individual industry. It aids the management in forecasting and evaluating the trends of the market.


2. Normative economics

It is concerned with varied corrective measures that a management undertakes under various circumstances. It deals with goal determination, goal development and achievement of these goals. Future planning, policy-making, decision-making and optimal utilization of available resources, come under the banner of managerial economics.


3. Pragmatic

Managerial economics is pragmatic. In pure micro-economic theory, analysis is performed, based on certain exceptions, which are far from reality. However, in managerial economics, managerial issues are resolved daily and difficult issues of economic theory are kept at bay.


4. Uses theory of firm

Managerial economics employs economic concepts and principles, which are known as the theory of Firm or ‘Economics of the Firm’. Thus, its scope is narrower than that of pure economic theory.


5. Takes the help of macroeconomics

Managerial economics incorporates certain aspects of macroeconomic theory. These are essential to comprehending the circumstances and environments that envelop the working conditions of an individual firm or an industry. Knowledge of macroeconomic issues such as business cycles, taxation policies, industrial policy of the government, price and distribution policies, wage policies and antimonopoly policies and so on, is integral to the successful functioning of a business enterprise.


6. Aims at helping the management

Managerial economics aims at supporting the management in taking corrective decisions and charting plans and policies for future.


7. A scientific art

Science is a system of rules and principles engendered for attaining given ends. Scientific methods have been credited as the optimal path to achieving one’s goals. Managerial economics has been is also called a scientific art because it helps the management in the best and efficient utilization of scarce economic resources. It considers production costs, demand, price, profit, risk etc. It assists the management in

singling out the most feasible alternative. Managerial economics facilitates good and result oriented decisions under conditions of uncertainty.


8. Prescriptive rather than descriptive

Managerial economics is a normative and applied discipline. It suggests the application of economic principles with regard to policy formulation, decision-making and future planning. It not only describes the goals of an organization but also prescribes the means of achieving these goals.




Types of Individual Behavior

There are five types of individual behaviors that enable organization to interact with their environment; acquire share; and use knowledge to the best advantage and meet the needs of various stakeholder.


The below diagrams highlights the five type of individual behavior; task performance, organizational citizenship, counterproductive work behaviors, joining and staying with the organization, and work attendance.

1. Task Performance

It refers to goals directed behaviors under individual’s control that support organizational objectives. Task performance behaviors transform raw materials into goods and services or support and maintain technical activities. For example, foreign exchange traders at Wachovia make decisions and take actions to exchange currencies. Employees in most jobs have more than one performance dimension. Foreign exchange traders must be able to identify profitable trades, work cooperatively with clients and co-workers in a stressful environment, assist in training new staff, and work on special telecommunications equipment without error. Some of these performance dimensions are more important than others, but only by considering all of them can we fully evaluate an employee’s contribution to the organization.


2. Organizational Citizenship

Companies could not effectively compete, transform resources, or serve the needs of their stakeholders if employees performed only their formal job duties. Employees also need to engage in organizational citizenship behaviors (OCBs) —various forms of cooperation and helpfulness to others that support the organization’s social and psychological context. In other words, companies require contextual performance (i.e., OCBs) along with task performance.


Organizational citizenship behaviors take many forms. Some are directed toward individuals, such as assisting co-workers with their work problems, adjusting your work schedule to accommodate co-workers, showing genuine courtesy toward coworkers, and sharing your work resources (supplies, technology, staff) with co-workers.


3. Counterproductive Work Behavior

Organizational behavior is interested in all workplace behaviors, including those on the “dark side,” collectively known as counterproductive work behaviors (CWBs). CWBs are voluntary behaviors that have the potential to directly or indirectly harm the organization. They include abuse of others (e.g., insults and nasty comments), threats (threatening harm), work avoidance (e.g., tardiness), work sabotage (doing work incorrectly), and overt acts (theft). CWBs are not minor concerns. One recent study found that units of a fast-food restaurant chain with higher CWBs had a significantly worse performance, whereas organizational citizenship had a relatively minor benefit.


4. Joining and Staying with the Organization

Task performance, organizational citizenship, and the lack of counterproductive work behaviors are obviously important, but if qualified people don’t join and stay with the organization, none of these performance-related behaviors will occur. Attracting and retaining talented people is particularly important as worries about skill shortages heat up.


Companies survive and thrive not just by hiring people with talent or potential; they also need to ensure that these employees stay with the company. Organizations with high turnover suffer because of the high cost of replacing people who leave. When people leave, some of this vital knowledge is lost, often resulting in inefficiencies, poorer customer service, and so forth. This threat is not trivial: Between one-third and one-half of employees say they would change companies if offered a comparable job.


5. Maintaining Work Attendance

Along with attracting and retaining employees, organizations need everyone to show up for work at scheduled times. Situational factors—such as severe weather or car breakdown—explain some work absences. Motivation is another factor. Employees who experience job dissatisfaction or work-related stress are more likely to be absent or late for work because taking time off is a way to temporarily withdraw from stressful or dissatisfying conditions. Absenteeism is also higher in organizations with generous sick leave because this benefit limits the negative financial impact of taking time away from work. Studies have found that absenteeism is also higher in teams with strong absence norms, meaning that team members tolerate and even expect co-workers to take time off.



Organizational Behavior – McShane | Von Glinow


Meaning of Organizational Behavior

Organizational behavior as the name suggests is the study of behavior of the people working in an organization. It involves understanding, predicting and controlling human behavior. In today’s dynamic and global work environment it is very important to understand and effectively manage the workforce, hence Organizational behavior becomes very critical to an organizations success.

Before we look at the meaning of organizational behavior, let us understand the meaning of organization. Organizations are group of people who work independently towards some purpose.

One of the key features of organization is that they are collective entities and consist of human beings (typically but not necessary employees). These people interact which each other in an organized way.

Let us look at some of the definitions of organizational behavior

It is the study and understanding of individual and group behavior and patterns of structure in order to help improve organizational performance and effectiveness


Organizational Behavior is the study of what people think, feel and do in and around organizations.

Its focus is on employee behavior, decisions, perceptions, and emotional responses. It looks at how individuals and teams in organizations relate to each other and to their counterparts in other organizations. OB also encompasses the study of how organizations interact with their external environments, particularly in the context of employee behavior and decisions. OB researchers systematically study these topics at multiple levels of analysis, namely, the individual, team (including interpersonal), and organization.

It is said that organizational behavior and management are synonymous as there is a close relationship between the two. However organizational behavior does not encompass the whole of management; it is more accurately described in the narrower interpretation of providing a behavioral approach to management.

All managers, besides their technical functions, have to deal with human beings, so they need to have the understanding of organizational behavior.

Three Basic Economic Questions

In our earlier section where we discussed scope of economics, we had talked about three basic economic questions remember?

  1. What to produce?
  2. How to produce?
  3. Whom to produce for?

Economic theory is concerned with how society answers the basic economic questions of what goods and services should be produced, and in what amounts, how these goods and services should be produced (i.e., the choice of the appropriate production technology), and for whom these goods and services should be produced.

Let us now look at these three questions in details

What to Produce?

In today’s economy what goods are produced is decided by the consumer rather than the producer himself. Look at any profitable firms; they would be only producing goods and services that are demanded by the consumers.

Those firms which produce only commodities will lose out their relevance sooner for instance typewriters, audio cassettes, etc…

Consumers express their preferences through their purchases of goods and services in the market. The authority of consumers to determine what goods and services are produced is often referred to as consumer sovereignty.

Consumer sovereignty is the authority of consumers to determine what goods and services are produced through their purchases in the market.

How to Produce?

This refers to the technology used to produce a particular good, this is normally determined by the firm’s management. It refers to the input used in production, production process, organization of those factors of production and the proportion in which these inputs are combined to produce goods and services that are most in demand by the consumer.

The main aim of any organization is profit maximization, this aim leads to deciding what factors of production will be used. In competitive markets, firms that do not combine productive inputs in the most efficient (least costly) manner possible will quickly be driven out of business.

Whom to Produce for?


These are those people who are willing to shell out money for the goods and services that are produced and are the direct beneficiaries of the production process.

While the what and the how questions lend themselves to objective economic analysis, answers to the for whom question are fraught with numerous philosophical and analytical pitfalls.

Income determines an individual’s ability to pay, and income is derived from the sale of the services of factors of production. When you sell your labor services, you receive payment. The rental price of labor is referred to as a wage or a salary. When you rent the services of capital, you receive payment. Economists refer to the rental price of capital as interest.

In market economies, the returns to the owners of these factors of production are largely determined through the interaction of supply and demand. Thus, an individual’s income is a function of the quality and quantity of the factors of production owned. Questions about the distribution of income are ultimately questions about the distribution of the ownership of factors of production and the supply and demand of those factors.

Scope of Managerial Economics

The scope of managerial economics comprehends all those economic concepts, theories and tools of analysis, which can be used to analyze the business environment and to find out solution to practical business problems.


The areas of business issues to which economic theories can be directly applied may be broadly divided into two categories.



Microeconomics has been defined as that branch of economics where the unit of study is an individual or a firm. It provides Micro Economic orientation to Managerial Economics.


It is the study of individual economic behavior where resources are costly. For example, how consumers respond to changes in prices and income, how businesses decide on employment and sales, voters’ behavior and setting of tax policy. This is close to analysis of the decision making aspect of the unit of management at the firm level.


Microeconomics, also known as price theory (or Marshallian economics) is the main source of concepts and analytical tools for managerial economics. To illustrate various micro-economic concepts such as elasticity of demand, marginal cost, the short and the long runs, various market forms, etc., all are of great significance to managerial economics.


Managerial Economics deals with allocating the scarce resources in a manner that minimizes the cost. As we have already discussed, Managerial Economics is different from microeconomics and macro-economics. Managerial Economics has a more narrow scope – it is actually solving managerial issues using micro-economics. Wherever there are scarce resources, managerial economics ensures that managers make effective and efficient decisions concerning customers, suppliers, competitors as well as within an organization. The fact of scarcity of resources gives rise to three fundamental questions-

  1. to produce?
  2. How to produce?
  3. Whom to produce for?



Macroeconomics, on the other hand, is aggregate in character and has the entire economy as a unit of study. It deals with economy as a whole, National Income, Trade Cycles, etc… are in this theme.


The study of aggregate economic variables directly (as opposed to the aggregation of individual consumers and businesses), e.g., issues relating to interest and exchange rates, inflation, unemployment, import and export policies.


The chief contribution of macroeconomics is in the area of forecasting. The modern theory of income and employment has direct implications for forecasting general business conditions.


As the prospects of an individual firm often depend greatly on general business conditions, individual firm forecasts depend on general business forecasts.


Managerial economics helps in decision-making as it involves logical thinking. Moreover, by studying simple models, managers can deal with more complex and practical situations. Also, a general approach is implemented. Managerial Economics take a wider picture of firm, i.e., it deals with questions such as what is a firm, what are the firm’s objectives, and what forces push the firm towards profit and away from profit. In short, managerial economics emphasizes upon the firm, the decisions relating to individual firms and the environment in which the firm operates. It deals with key issues such as what conditions favour entry and exit of firms in market, why are people paid well in some jobs and not so well in other jobs, etc. Managerial Economics is a great rational and analytical tool.


To conclude, macroeconomics studies the economic system in aggregate, while microeconomics studies the behavior of individual decision-making economic unit like a firm, a consumer or an individual supplier of some factor of production.

Barriers To Communication

There will be instance when you are talking to someone and they misunderstood what you are saying. One would have come across such situations many times in his/her life.

This is because at any time in the communication process a barrier can occur, it is the barrier that avoids people from understanding other person ideas or thoughts. Barriers can occur at any point of the communication loop.

Barriers are of two types –– internal and external.

Examples of internal barriers are fatigue, poor listening skills, attitude toward the sender or the information, lack of interest in the message, fear, mistrust, past experiences, negative attitude, problems at home, lack of common experiences, and emotions. Examples of external barriers include noise, distractions, e-mail not working, bad phone connections, time of day; sender used too many technical words for the audience, and environment.

Barriers prevent the intended message from reaching to the receiver correctly, so while communicating one must monitor the actions of the receiver. Watch the body language to ensure the message is received correctly.

Some of the barriers to communication are:

1. Psychological

This related to perceptual biases or stereotypes that impact how an individual interprets a particular person’s message. Different people respond in different ways. Stereotyping is one such example. It is when we assume that the other person has certain characteristics based on the group to which he/she belongs.

2. Semantic

This is used to describe situations where language or cultural differences distort or interfere with the actual meaning of the message. Given that dramatic differences exist across cultures in terms of approaches to time, space, and privacy; the opportunities for misinterpretation when we are in cross-cultural situations are plentiful.

Effective communication requires deciphering and understanding the basic values, motives, and assumptions of the other person.

3. Environment

It refers to a wide range of factors which either encourage or inhibit interactions,  these include, room size, distanced between the two, layout of the furniture, heating and lightning, etc…

4. Demographic

Factors such as gender and age can impact on the way in which a message is interpreted. For example, a male listener may nod his head to indicate to the speaker ‘I agree’, whereas a female listener may nod her head to communicate ‘I am listening’ (but not necessarily agreeing); so sending the same visible feedback but with different actual meanings (Stewart and Logan, 1998).

5. Disability

Physical or neurological impairment as well as psychiatric illness can call for alternative means to the usual patterns of communication to be adopted. Some examples include sight or hearing loss, and conditions such as Parkinson’s disease or severe depression (Hargie et al, 2004).

6. Organizational

Barriers to effective communication can be located within the organization or agency itself. Difficulties with established lines and means of communication, different relative physical location of staff, lack of team or supervision meetings, and under resourced supervisors are factors that can impact negatively on effective communication.

One cannot avoid all the noise in the communication process, however one has to be aware of noise that exists to minimize its impact


Dickson, 1999

Communication Process

In our earlier blog we tried to explain the importance of effective communication, now let us understand the communication process.

The communication process is a simple method that demonstrates all the factors that can affect communication. Communication is effective if the message received is the same as the one which is sent.

Below diagram represents the communication process

As per the above diagram, the communication process can broken down into four elements

  1. Sender

The communicator or the sender is the person who is initiating a message. There are two factors which will determine how effective the communication will be. The first is the communicator’s attitude, it must be positive. The second factor is the communicator’s selection of meaningful symbol, selecting the right symbols depend upon the audience and the right environment.

  1. Message

Messages are the signs and symbols that we use to convey what we want to transmit. They can occur in various ways, including visual (non-verbal, written), auditory (verbal and sub-vocal speech), tactile (touch, bodily contact) and olfactory (perfumes, aftershaves) formats.

  1. Receiver

This is the person to whom the communication was directed to. The receiver must receive the message, make sense of it, understand it and translate it into meaning. Communication is only successful when the reaction of the receiver that which the communicator intended.

  1. Feedback

Feedback is the reaction which we just mentioned above, it can be verbal or non-verbal. It’s the feedback that allows the communicator to adjust his message and be more effective. Without feedback, there would be no way of knowing if meaning had been shared or if understanding had taken place.

Communication is a two-way process. The information goes out to a person on the other end. There is a sender and a receiver. Simply put, effective communication is getting your message across to the receiver. It is the sender’s responsibility to make sure that the receiver gets the message and that the message received is the one sent.

Communicating is not an isolated series of one skill, it involves several skills. For example, speaking involves not only getting your message across but also being able to listen and understand what others are saying (active listening) and observing the verbal and nonverbal clues in order to monitor the effectiveness of your message.

Nature of Managerial Economics

Managerial economics is concerned with the application of economic concepts and analysis to the problem of formulating rational managerial decisions. There are four groups of problems in both decision-making and forward planning.

1. Resource Allocation

Scare resources have to be used with utmost efficiency to get optimal results. These include production programming, problem of transportation, etc.

2. Inventory and Queuing Problem

Inventory problems involve decisions about holding of optimal levels of stocks of raw materials and finished goods over a period. These decisions are supply conditions, queuing problems involve decisions about installation of additional machines or hiring of extra labour in order to balance the business lost by not undertaking these activities.

3. Pricing Problems

Fixing prices for the products of the firm is an important part of the decision-making process. Pricing problems involve decisions regarding various methods of pricing to be adopted.

4. Investment Problems

Forward planning involves investment problems. These are problems of allocating scarce resources overtime. For example, investing in new plants, how much to invest, sources of funds etc.

Study of Managerial economics essentially involves the analysis of certain major subjects like:

  • Demand analysis and methods of forecasting.
  • Cost analysis
  • Pricing theory and policies
  • Profit analysis with special reference to Break-Even point
  • Capital budgeting for investment decisions
  • The business firm and objectives
  • Competition

Demand analysis and forecasting help a manager in the earliest stage in choosing the product and in planning output levels. A study of demand elasticity goes a long way in helping the firm to fix prices for its products.

The theory of cost also forms an essential part of their subject. Estimation is necessary for making output variations with fixed plants or for the purpose of new investment in the same line of production or in different venture.

The firm works for profits and optimal or near maximum profits depend up on accurate price decisions.

Theories regarding price determination under various market conditions enable the firm to solve the price fixation problems.

Control of costs, proper pricing policies, break-even point analysis, alternative profit policies are some of the important techniques in profit planning for the firm which has to work under conditions of uncertainty. Thus managerial economic tries to find out which course is likely to be the best for the firm under a given set of conditions.

Introduction to Managerial Economics

One of the important functions of a manager in any organization is decision making and planning. Managerial economic is the application of economic theory to managerial practice. It relates to the use of tools and techniques of economic analysis to solve managerial problems.

Managerial economics applies economic theory and methods to business and administrative decision making

Managerial economics is the science of directing scarce resources to manage cost effectively. It consists of three branches: competitive markets, market power, and imperfect markets. A market consists of buyers and sellers that communicate with each other for voluntary exchange. Whether a market is local or global, the same managerial economics apply.

An organization must decide its vertical and horizontal boundaries. For effective management, it is important to distinguish marginal from average values and stocks from flows. Managerial economics applies models that are necessarily less than completely realistic. Typically, a model focuses on one issue, holding other things equal.

Managerial economics identifies ways to efficiently achieve goals. For example, suppose a small business seeks rapid growth to reach a size that permits efficient use of national media advertising. Managerial economics can be used to identify pricing and production strategies to help meet this short-run objective quickly and effectively

Managerial economics provides production and marketing rules that permit the company to maximize net profits once it has achieved growth objectives.

Managerial economics has applications in both profit and not-for-profit sectors. For example, an administrator of a nonprofit hospital strives to provide the best medical care possible given limited medical staff, equipment, and related resources. Using the tools and concepts of managerial economics, the administrator can determine the optimal allocation of these limited resources. In short, managerial economics helps managers arrive at a set of operating rules that aid in the efficient use of scarce human and capital resources. By following these rules, businesses, nonprofit organizations, and government agencies are able to meet objectives efficiently.

Managerial economics applies economic theory and methods to solve business and administrative problems through the proper use of economic models in decision making. Managerial economics prescribes rules for improving managerial decisions. Managerial economics also helps managers recognize how economic forces affect organizations and describes the economic consequences of managerial behavior. It links traditional economics with the decision sciences to develop vital tools for managerial decision making.

A seller with market power will have freedom to choose suppliers, set prices, and use advertising to influence demand. A market is imperfect when one party directly conveys a benefit or cost to others, or when one party has better information than others

Wherever resources are scarce, a manager can make more effective decisions by applying the discipline of managerial economics. These may be decisions with regard to customers, suppliers, competitors, or the internal workings of the organization. It does not matter whether the setting is a business, nonprofit organization, or home. In all of these settings, managers must make the best of scarce resources.

Almost any business decision can be analyzed with managerial economics techniques. However, the most frequent applications of these techniques are as follows:

1. Risk analysis

Various models are used to quantify risk and asymmetric information and to employ them in decision rules to manage risk.

2. Production analysis

Microeconomic techniques are used to analyze production efficiency, optimum factor allocation, costs and economies of scale. They are also utilized to estimate the firm’s cost function.

3. Pricing analysis

Microeconomic techniques are employed to examine various pricing decisions. This involves transfer pricing, joint product pricing, price discrimination, price elasticity estimations and choice of the optimal pricing method.

4. Capital budgeting

Investment theory is used to scrutinize a firm’s capital purchasing decisions.

The below figure tells us the ways in which Managerial Economics correlates to managerial decisions