Principles of management - prima parte

Maximise his own income and wealth

Carries out economic activities as a mean of achieving personal ends.

Capable of perfect rationality

Their rationality is bounded

His tendency to maximise his own wealth is Economic choices are never made by an individual in a strict sense.

Companies that think just for themselves lose their legitimacy because companies rely on human beings. In fact investors and managers care about environmental and social impact on society and they need to show their commitment to their stakeholders.

Maslow's pyramid (1943)

As said above, the role of the company in society is to satisfy needs of people in order to make them happy by providing economic goods. Ones again there is a theory that explains how people tend to satisfy needs, starting with basic needs and then gradually moving on to higher, more complex needs.

According to Douglas McGregor's work there are two types of behavior: theory x, people never take

On responsibility, there are two theories: theory X, where people need to be forced to take on responsibility, and theory Y, where people spontaneously tend to take on responsibility.

There are other classifications of needs, such as:

1. Natural needs
2. Social needs

Under social needs, there are:

• Radical needs (justice, freedom, equality, etc.)
• Non-radical needs (belonging, identification, safety, etc.)

Both natural and social needs can be classified as:

• Essential
• Non-essential

However, as a general rule, human needs are structured in a hierarchy.

One of the requirements for satisfying needs is the availability of goods. There are two large categories of goods:

• Economic goods: scarce with respect to demand (we need to have a market)
• Non-economic goods: unlimited in supply (ex. we don't need to pay for air)

More specific goods classifications include:

• Substitute goods: more goods that satisfy the same needs (e.g. pen and pencil)
• Complementary goods: one good is useful with another

good (pen and papers in order to write)▪ –Differentiable uniquely different than other goods (clothing)▪ –Commodity more goods have the same standard and constant characteristic (raw materials)▪ –Disposable consumed short time after purchase and just one time. (food)▪ –Durable used repeatedly over time (vehicles)▪ –Private consumption of the goods possible for only a small group of people▪ –Public consumption by society as a whole

Economic activity mainly takes place in organizations. Such activity emerges clearly and intensely in the form of revenues, costs, consumption, savings, investments, cash flows, debt and credit relations, assets and capital. Economic activity is particularly vital in the following social bodies: families, firms, the State and branches of public administration, nonprofit organization.

Primary goals of these bodies:

• Families: satisfying the needs of family members;
• Firms: producing rewards for employees and

shareholders; State and public administration: producing and consuming public goods as well as generating rewards for employees; Nonprofit organizations: various combination of goals entailing producing rewards and producing and consuming goods by members of the organization. One of the most apparent aspects of modern economic system is specialization, intended by three levels. They start to specialise to render the system more efficient.

1. Macro:
   • Profit production for individuals
   • No profit solve community problems
   • Families consume
   • Public administration production for collectivity
2. Specialisation inside companies (classifying industries on the basis of the needs they satisfy): ex. insurance, banks, education, computer, food..
3. Inside companies there are groups of activities run by different people:
   • administration
   • production
   • sales
   • communication
   • logistics, ecc...

There are clear advantages inherent to specialization:

• Higher quality
• Increased efficiency
• Greater productivity
• Cost reduction
• Expertise and skill development

Less effort- High speed and efficiency- Learning processes repeating the same activity

Unfortunately, there are also disadvantages:

• Demotivation: when specialization leads to assigning very isolated, simple and repetitive tasks to individual employees, the effect is negative.
• Needs of coordination: and managerial orientation, the more frequent tension and conflict will be;
• Specific investments and rigidity: specialized skills are product of specific investments which may substantially be lost when the investment-related activity is no longer conducted. Also, when a given activity needs to be modified, the time and cost of change can be very high.

QUESTIONS: Session 01- People and economic activities

1. The nature of enterprise: aims and social role
2. The role of profit in the enterprise's life.
3. The main stakeholders' categories of an enterprise.
4. The homo oeconomicus and human being.
5. The responsibilities of management in firms.

Explain the concept of entrepreneurship and his differences with management.

Entrepreneurship is the process of creating and managing a business venture, taking on financial risks in order to achieve success. It involves identifying opportunities, developing innovative ideas, and organizing resources to turn those ideas into profitable businesses.

Management, on the other hand, is the process of planning, organizing, and controlling resources within an organization to achieve its goals. It focuses on the efficient and effective use of resources to maximize productivity and profitability.

Discuss the pyramid of needs.

The pyramid of needs, also known as Maslow's hierarchy of needs, is a theory proposed by Abraham Maslow that categorizes human needs into five levels. The levels, from bottom to top, are:

1. Physiological needs: These are the basic needs for survival, such as food, water, and shelter.
2. Safety needs: These include the need for security, stability, and protection from physical and emotional harm.
3. Love and belongingness needs: These involve the need for social relationships, love, and a sense of belonging.
4. Esteem needs: These include the need for self-esteem, recognition, and respect from others.
5. Self-actualization needs: These are the highest level needs, involving the need for personal growth, fulfillment, and reaching one's full potential.

Economic and non-economic goods.

Economic goods are tangible or intangible products or services that have a monetary value and are scarce in relation to demand. They are typically produced and distributed through economic activities and are subject to supply and demand dynamics.

Non-economic goods, on the other hand, are goods that do not have a monetary value and are not subject to supply and demand dynamics. They are often provided by nature or are freely available to individuals without any cost.

Explain some categorizations of economic goods.

Economic goods can be categorized based on various criteria:

• Consumer goods: These are goods that are directly consumed by individuals for their personal use, such as food, clothing, and electronics.
• Capital goods: These are goods that are used in the production of other goods and services, such as machinery, equipment, and buildings.
• Intermediate goods: These are goods that are used as inputs in the production process but are not the final product, such as raw materials and components.
• Durable goods: These are goods that have a long lifespan and are used repeatedly over a period of time, such as cars and furniture.
• Non-durable goods: These are goods that have a short lifespan and are consumed or used up quickly, such as food and toiletries.

Key features of the four classes of social entities.

The four classes of social entities are:

1. Individuals: These are single human beings who have their own unique characteristics, abilities, and rights.
2. Groups: These are collections of individuals who come together for a common purpose or goal, such as a team or an organization.
3. Organizations: These are formal structures that are created to achieve specific objectives, such as businesses, government agencies, and non-profit organizations.
4. Institutions: These are established systems or structures that govern social behavior and provide stability and order in society, such as legal systems, educational systems, and religious institutions.

The levels of specialization in modern economic activities.

In modern economic activities, specialization occurs at various levels:

1. Occupational specialization: This refers to individuals specializing in specific occupations or professions, such as doctors, engineers, or teachers.
2. Industry specialization: This refers to businesses specializing in specific industries or sectors, such as automotive, technology, or healthcare.
3. Regional specialization: This refers to geographic areas specializing in specific economic activities or industries, such as Silicon Valley for technology or Wall Street for finance.
4. Global specialization: This refers to countries or regions specializing in specific economic activities or industries on a global scale, such as China for manufacturing or Switzerland for banking.

The main advantages connected to specialization.

Specialization offers several advantages:

• Increased productivity: Specialization allows individuals or businesses to focus on specific tasks or areas of expertise, leading to increased efficiency and productivity.
• Improved quality: Specialization enables individuals or businesses to develop specialized skills or knowledge, resulting in higher quality products or services.
• Cost savings: Specialization can lead to cost savings through economies of scale, as individuals or businesses can produce or purchase goods and services in larger quantities.
• Innovation and progress: Specialization encourages the development of new ideas, technologies, and processes, driving innovation and progress in various fields.
• Increased trade and interdependence: Specialization promotes trade and interdependence between individuals, businesses, and countries, leading to economic growth and development.

The nature of enterprise: aims and social role

An enterprise is a body composed of a community of people at the service of the society aimed to production of products and services that can satisfy the needs of the society. The three main characteristics of companies are the following: it could be a private entity; it should be an educational center, in terms of skills to provide and share and values to promote; it is oriented to last over time, to satisfy the needs of the society as long as possible.

The role of profit in the enterprise's life

The revenues of a firm are necessary in order to pay employees for their work, give

and expect back a form of compensation (represented by the dividends and the capital gains), a sufficient liquidity level for investments, and the possibility to influence and control the people who govern the company. Other stakeholders are suppliers, which provide production factors, such as raw materials, to the company and expect back a long-lasting supply relationship and prices which allow acceptable margins and reasonable economic conditions. For its part, the company also has some expectations from suppliers; for instance, it expects on-time delivery, reasonable prices, and the chance to schedule payments, consistent quality with the price paid, and long-term guarantees. Other stakeholders are customers, State and governments, and insurance companies. One of the possible difficulties for a company could be balancing stakeholders' contributions and expectations. Right about the equilibrium between the homo oeconomus and the human being At the basis of every economic theory, there is an analysis of theindividual, but are influenced by social and cultural factors. In this model, human beings are seen as social beings who are motivated by a combination of self-interest and concern for others. In the economic world, human beings are not solely driven by the pursuit of wealth and material gain. They also value relationships, community, and the well-being of others. This means that their decisions and actions are not solely based on maximizing their own income and wealth, but also take into account the impact on others and the broader society. Furthermore, human rationality is not perfect and unlimited. People are subject to cognitive biases, emotions, and social influences that can affect their decision-making process. This means that their choices are not always optimal or rational, but are influenced by various factors such as social norms, cultural values, and personal beliefs. In summary, the traditional homo oeconomus model, which portrays human beings as completely self-interested and rational actors, is an oversimplification of the economic reality. The modern understanding of human behavior in the economic world recognizes the importance of social relationships, bounded rationality, and the influence of social and cultural factors on decision-making.

An individual in a strict sense, but more frequently influenced by a group or a group itself. Companies that think just for themselves lose their legitimacy because companies rely on human beings. In fact, investors and managers care about environmental and social impact on society and they need to show their commitment to their stakeholders.

The responsibility of management in firms

Management is important in firms because of its coordinative role. In fact, management is about good running and growth of an organisation.

Explain the concept of entrepreneurship and his differences with management

The entrepreneurship is a process which leads an individual (or a group) to invest personal resources, such as time, relationship, reputation and money, for the creation and management of a new organization designed to pursue an innovative opportunity, with regard to a specific socio-economic context. Moreover, not always the inventor of something coincides with the entrepreneur. A perfect example

is Laszlo Biro, who invented the concept of the pen with a spherical tip, and Marcel Bich, who realized the potential of the pen and undertook to realize a cheap model, in this way everyone could use it, and founded the BIC company. We can resume the entrepreneurship by saying that its objects are problems and needs, opportunity recognition and support, whereas the aim is facilitating factors to opportunity recognition and innovation.

Management, instead, is about good running and growth of a single organization, that is how to organize it and which strategy to apply.

Discuss the pyramid of needs

The role of the company in society is to satisfy needs of people in order to make them happy by providing economic goods. There is a theory that explains how people tend to satisfy needs.