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The Economic Domain

management, organizing, economic factors, managerial skills, administration, economy

Economic factors are the factors most readily identified by most organization managers. Interest rates, trade deficits, inflation rates, gross national product indicators, and the money supply are all economic factors that may influence an organization's activities. Factors in the economic domain are important because they have implications for the ability of organization managers to get the resources needed to produce goods and services and distribute those goods and services to a market.

One can identify economic factors for virtually all types of organizations. Suppliers, whether individuals or organizations, provide raw materials, labor, equipment, and financial inputs to an organization. The price a supplier charges for these inputs will often affect the profit and sales of the organization. Customers are also a factor in the economic domain through their willingness or unwillingness to buy a good or service at a particular price.

Managers spend considerable time forecasting economic changes because those changes influence the cost of borrowing money, the ability to engage in international trade, and the cost of materials from suppliers. Banks may raise their lending rates in anticipation of inflation. Computer manufacturers may delay building a new plant believing that interest rates will drop within the year. Steel manufacturers dependent on foreign imports are hurt when the value of the dollar declines in relation to foreign currencies. On the other hand, some organizations are insulated from economic conditions. Rolls-Royce, a manufacturer of expensive luxury cars, claims to be unaffected by economic factors because Rolls-Royce customers are not typically concerned about price. Health-food stores often find that the state of the economy has little effect on their sales.

AT&T has had to consider a wide array of economic factors throughout its history. Because the firm has operated in international markets, it has had to respond to changes in interest rates, trade deficits, and inflation in the United States and overseas. For instance, the value of a foreign country's currency will affect the cost of overseas long-distance calling. When foreign currency is increasing in value relative to the dollar, the cost of a long-distance call to the country will increase. When foreign currency is decreasing in value relative to the dollar, the cost of a long-distance call to the country will decrease. Since the value of a country's currency changes on a daily basis, AT&T management must be aware of the direction and rate of change in currency throughout the world.

The breakup of AT&T has transformed its economic domain. Pricing of goods and services to customers used to be determined by the cost of providing goods and services with respect to a regulated profit margin. With the introduction of competition and entrance into new markets, AT&T is now required to price its goods and services based on competitive pricing and customer demand. In addition, resource suppliers were constrained in the price they charged AT&T. After the breakup, prices of supplies could be adjusted based on demand from the many organizations that are now providing telephone service to customers. This change in AT&T's economic domain has, of course, required management to set up new systems for determining the price and cost of its goods and services.

Published: 2007-05-12
Author: Martin Hahn

About the author or the publisher
Martin Hahn PhD has received his education and degrees in Europe in organizational/industrial sociology. He grew up in South-East Asia and moved to Europe to get his tertiary education and gain experience in the fields of scientific research, radio journalism, and management consulting.

After living in Europe for 12 years, he moved to South-East again and has worked for the last 12 years as a management consultant, university lecturer, corporate trainer, and international school administrator

www.martin-hahn.net

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