Introduction to management

Introduction to management class 120/09/2021

Today's agenda

• Needs
• Needs and goods
• Production and consumption
• Firm's purpose
• Production factors
• Our 4 hypotheses
• Implications

Needs

Management is a social science discipline, which means that it is about people, individuals (in fact we use this expression “managing people”). People aspire to a variety of goals at different levels (they want to have something, they have needs and they want to satisfy these needs). The pursuit of these goals gives rise to needs. Management is about the economic implications of the production and the consumption of goods because one way people satisfy these needs is through the economic activity (which is for example human labor, to produce something), that is by definition producing and consuming economic goods. So, economic activities are run to satisfy the needs: how? We’ll be analyzing the satisfaction of human needs from an economic perspective (the cost of producing a good and then the price).

Management is a social science discipline, which means that we’ll be talking about individuals, human beings, how human beings organize themselves to satisfy the needs: safety, security, etc).

A need is the necessity of a good, a product or a service. There are two types of needs:

• Natural or physiological needs are a product of human biology (food, shelter, sleep, security, etc).
• Social needs are also called ethical, aesthetic and religious needs and are affected by the fact that individuals interact with other individuals and with groups.

The needs can be classified, there is a hierarchy (and this is what management does - everything starts from the need of somebody). Needs (both natural and social) can be classified as essential (or primary) needs and non-essential (secondary) needs, which means that some needs are more basic than other needs. This is called the hierarchy of needs and the first person who introduced this concept (the fact that needs can be classified) is a guy called Maslow.

What is Maslow's Hierarchy of Needs?

The hierarchy of needs takes into consideration the fact that we have basic needs, psychological needs, self-fulfillment needs and it’s a never-ending story since once you are done with the basement, with the basic level we, as human beings, as individuals have other needs, esteemed needs, self-fulfillment needs.

If you work for a company, you have to ask yourself which type of product or service are we selling? Which are the needs that we want to satisfy? And in 2021 the answer could be “there is no need for this good”, so we’ll create the need → inducing the need. There is a function within the company called “sales” (vendite) = you have to sell, but there is no need, no problem (and these are the marketing guys).

Needs and goods

There are many disciplines that take into consideration the needs, such as sociology, which analyzes the needs of people or psychology. Management analyzes the needs of people from an economic perspective, that is the following: goods and services that are used to satisfy people’s needs in a limited quantity because they are produced (or are available) in a limited (given) amount, with the respect to people’s demand.

• Private Goods: produced by companies (firms), not for profit organizations
• Public Goods: produced by public organizations (safety, security is a public good)

Some goods can be both public and private (for profit or not for profit), such as transportation, education, healthcare, etc.

Production and consumption

«Economic activity involves processes of production and consumption» (If you are a company and you have to sell something, you have to produce this something and at the same time you have to have clients, customers that consume otherwise you’re dead).

Production and consumption: these two processes are both extremely important for management. We take into consideration the economic activity: so the base of management is the economic activity (production and consumption): why? Because people have needs and we want to satisfy those needs.

From this moment onwards we’re going to take into consideration companies or business firms private for profit (then we’ll take into consideration other types).

Key message: all the companies carry out economic production activities but not all the companies produce goods and services, because there are the so-called credit institutions (banks) and insurance companies produce neither goods nor services.

Economic activity financial activity

Takes into consideration the relationship “money over money” between financial resources (money) and needs and goods (you produce something) financial resources: money. The relationship between banks or financial institutions and organizations is very important, otherwise you don’t have the money.

The purpose of firms

The purpose (the reason why they exist) of firms is not to produce profit, but to produce revenues for two categories of people: workers and shareholders (azionisti) who are essential to the existence of the governance of the firm. Revenues are given by the unit multiplied by. So, economic production (producing goods and services) is the means to a firm’s ultimate purpose of producing revenues in the form of compensation for work and equity capital.

Production factors

When we talk about management, there is something called production factors. Economic production is undertaken by combining certain production factors, which are: labor (people, individuals doing the job) and equity capital originated by savings (money used to run the company, for example money used for paying salaries).

The most relevant production factor is labor of every kind (operations, management, economic governance), which is a primary production factor. Capital originated by savings is also very important (this is why companies are looking for investors, to collect money).

These two production factors delineate the two categories of people that are extremely important in management and in managerial theories, who have core economic stakes in a firm and should have the right to right/responsibility to govern it: workers and shareholders.

Our 4 hypotheses

These four assumptions represent the basics of management.

• People carry out economic activity not as an end in itself but as a means of achieving personal ends.
• People are members of groups, organizations, communities and social bodies in general and this fact impacts their goals, values, and individual needs. Economic choices are never made by an individual in a strict sense but by an individual who belongs to any number of social bodies. It’s very important to consider that individuals have values, have needs and they make economic choices not because they are individuals, but because they are individuals involved in social bodies. If we want to analyze individuals we don’t have to forget that the single customer does not exist, we have customers involved in social bodies interacting and the decisions they take to buy or not to buy goods are because they are members of communities.
• People and social groups make rational economic choices though their rationality is bounded (limited). We try to be rational, but we don’t have all the information, therefore this is what we do: we try to get all the information, written by other users (we don’t know what is going to happen in the future).
• Human beings, if allowed to work in a context modeled on principles of justice, share solidarity, loyalty, and progress. If we think that the others will be just with us, we’re going to share the same approach. If we think that the others will screw us, we’re going to react the same way. → This is called “self-fulfillment reality”.

Implication(s)

• People act to maximize their personal well-being (which is not just material well-being).
• People make choices which are based on rationality, but it is not perfect rationality: it is bounded.
• People make decisions and all human activities are about making decisions … this is what managers do: they take decisions.

Introduction to management class 222/09/2021

Today's agenda

• Different types of organizations
• Families
• Firms
• The public administration
• Nonprofit organizations

Different types of organizations

Individuals tend to be part of social bodies. Why do individuals want to join social entities or groups? For two reasons (managerial implications):

• To achieve results that cannot be achieved with individual resources.
• To fulfill the need for sociality through deep, beneficial, interpersonal relationships.

The social entities have an economic activity and this is something important. Economic activity (production and consumption) takes place in organizations and in relationships among them. Economic activity is particularly vital in the following social bodies:

• Families
• Firms
• Public administration
• Nonprofit organizations

These four types of social bodies share the common purpose of satisfying human needs. These four types of organizations have different goals, they all satisfy the needs, but different needs. Moreover, each single individual is involved in more than one organization. The means they employ is economic activity. They differ in specific primary goals:

• Families – satisfying the needs of the family members.
• Firms – producing rewards for employees and shareholders.
• Public administration – producing and consuming public goods as well as generating rewards for employees.
• Nonprofit organizations – various combinations of goals entailing production rewards and producing and consuming goods by members of the organization. They are aimed at satisfying different needs (such as the protection of the environment).

Naturally, not-for-profit organizations have volunteers, but also have workers. Firms or private companies are allowed to pay dividends (profitti), not-for-profit cannot pay dividends, so all the profits produced by not-for-profit have to be reinvested in the organization without any distribution of dividends or profits. Profits are usually given to shareholders. If a company is profitable, the company can decide to pay dividends or not (it’s a decision made by the company).

Let's talk about the different types of organizations

There are four different types of organizations: families, firms, public administration, non-profit organizations.

Families

The family is the basic social entity in society. Its prevailing purpose is primarily social, ethical, and religious in nature. In the family, the core economic interests are:

«Satisfying the present and the future needs of family members by bearing the costs of consumption in a fitting matter and attaining the relative level of income such as to allow the family unit to participate in the civil process».

Families spend money: they buy services, they buy goods. Who consumes only? Families. A family has an income and the family spends money to satisfy the needs of the family members.

Firms

A firm is an organization (meaning: it’s a group of people), therefore it is a social body. The primary economic goal of the firm is the production of monetary rewards and non-monetary rewards (the prestige/brand value/reputation of a company → popularity of the firm among customers). These rewards contribute to the income and the assets of the families of the employees and of the shareholders. Families have an income and they spend money - the income comes from the workers, who work in firms → the rewards generate the income of the family. (Usually managers, especially top managers are paid with money but also with assets, for example share) Firms produce and sell products and or services.

Combining work and savings capital and paying taxes on the resulting income are typical of all the types of firms (so they produce, they sell and they pay taxes on the revenues, called income taxes - VAT - value-added tax, otherwise it’s a fiscal fraud - taxes are important because otherwise public administrations would not have the money). Families have an income and they spend money - the income comes from the workers, who work in firms - firms produce, sell and pay taxes to public administrations.

Public administration

Public administrations are different:

• There is no market price (education, healthcare, the police do not have a price).
• They provide public goods.
• They satisfy general interest.
• There is a plurality of entities, which means that some services are managed by different entities.
• There is a cost of public governance.

Governance means decision-making process - who is in charge of making each decision. If public organizations don’t have a price, how shall we cover the cost? Through taxation coming from the revenues of the firms and the income tax of individuals (IRPEF - imposta sul reddito delle persone fisiche) and VAT. Are mission-driven organizations: public administrations have a mission, which is different from nation to nation because the population decides the structure of public administration given by constitutional laws and others (how public administration works).

Nonprofit organizations

Not-for-profit organizations are in between the public sector (public administrations) and the private sector (firms). The definition is misleading because they are called non-profit even though they are profitable. They can be profitable but they cannot pay dividends. They are private entities but they address public issues (the environment, animals, poverty, healthcare).

They are value-driven organizations, which means that a not-for-profit organization is built this way: there are individuals, called founders, that say «we love to play chess, so we create the club and we play tournaments». Some not-for-profit organizations sell goods and services with a price but there is also fundraising. They are both at local level and at international level: there are some not-for-profit organizations that provide services internationally (the Red Cross) and are called NGO (non-governmental organizations) - they have their own values.

Introduction to management class 327/09/2021

Today's agenda

• The differentiation of organizations: alternative economic models
• Economic specialization (the 3 levels of specialization)
• Concept of stakeholders
• Wrap-up

Concept of stakeholders

Stakeholders (portatori di interesse) are different from shareholders. Stakeholders are more general - one of the possible stakeholders are the shareholders. The concept of stakeholders is much bigger than the one of shareholders.

Wrap up

Social bodies are created because as human beings we want to satisfy different needs and these social bodies are aimed at satisfying these different needs. One person can be part of more than one social body → we have these needs and we satisfy them by joining different social bodies. Social bodies are analyzed by different disciplines that analyze the social bodies from different perspectives: management analyzes social bodies from an economic perspective and takes into consideration the economic activity (production and consumption).

Does this mean that these four social bodies produce and consume goods and services? No way, since families buy (consume), companies produce and sell, PA and non-for-profit produce and somehow sell (only some goods).

Videos

First video: NGO with a name and an aim that was supporting the concept that there is something wrong if corporations want to simply maximize the profit, because the idea is naturally to give money to investors (shareholders) but the purpose is different: revenues, the relationship with society and so on. What’s the purpose of a corporation? To produce revenues to pay workers and shareholders and then there’s also an important task that is the impact that a company has on society, called Corporate Social Responsibility. Each single company is unique - Managers take decision → companies are organized differently.

Second video: Steve Jobs presents his vision on how Apple is organized and why it has to be considered unique. A company, at the end of the day, is a group of people, a group of individuals.

• Within a company, people interact, have meetings once in a while and discuss organigram → the organizational structure/how a company is organized.
• Value created by the interaction of people → the best idea has to win, otherwise people won’t stay.

People move from one organization to another for many reasons, it’s not just for the salary, it is also the way a company works, the way a company is organized, the way it satisfies the needs of the workers.

Third video: Within management, there is a discipline called stakeholder theory. It is absolutely important that a company decides which business model is more coherent with its purpose → this is why management is becoming so important. When we want to analyze a business company, we should also analyze its business model, which is unique and has to be coherent with the purpose of the company.