6 pages 48 hours (A0109)

LUBS 5002

Information & Organisational

Design

Prof. Andrew Robinson

What Students Can Expect From Us

 Staff who are interested in them and their development.

 Staff who understand and empathise with the demands of being a student and preparing for a career.

 Staff who are enthusiastic about their subjects and the modules they teach.

 Staff who want to be part of an active community of academics and students, and who value the worth of scholarship.

 Staff who endeavour to bring real cases to their teaching and help students bridge into the business world.

 Finally, staff who learn from their mistakes!

What We Expect From Students

 A hunger to learn and seize the fantastic opportunity on offer here at Leeds.

 To respect their fellow students and staff.

 To play an active part in the A&F community and help its development for the common good.

 To share experiences and bring issues to the table.

 To be proud of their time at Leeds and be life long ambassadors.

 To help us develop a student A&F society and an ongoing alumni society.

 Be active with local initiatives.

Introduction

 “It has been said that proficiency in economics is grounds for failure in business management, and managerial skills grounds for disqualification from the economics profession” Joseph Bower

 This course is presented with the hope of drawing the attention of managers to the potential usefulness of certain tools of economic analysis to gain an understanding of information and organisational design.

Module Design The division of labour

Specialisation

Co-ordination

Market Information Organisation

·Economic Approaches to Organisations

- Agency Theory - Transaction Cost Economics

- Strategy - Evolutionary Approaches

Markets and Organisations The Economic Problem

 Scarcity

unlimited wants, scare resources

 Benchmarking efficiency

Pareto optimality

 Trade-offs

Opportunity Cost

Markets and Organisations The Basic Concepts

 The division of labour

 Specialisation

 Co-ordination

 Information

The UK Car Industry

Operations within the Car Industry and Operational Capacity _______________________________________________________________________

Optimum Output per year (cars)

_______________________________________________________________________ Technical Functions Casting of engine blocks 1,000,000 Casting of various other parts 100,000 - 750,000 Power train (engine, transmission, etc) machining and assembly 600,000 Pressing of various panels 1 - 2,000,000 Paint Shop 250,000 Final Assembly 250,000

Non-technical Functions Sales 1,000,000 Finance 2,500,000 Research and Development 5,000,000 _______________________________________________________________________ Source: From various sources cited in the Decline of the British Motor Industry by P.J.S. Dunnett, Croom Helm, London.

Information Buying a Second Hand Car

A car dealer offers to sell you a second hand, top of the range VW Golf for £10,000. This seems to be under the “normal” price charged for such a car and therefore you are very interested in its purchase. There is only one problem. The seller lives at the other end of the country and you cannot get to see the car.

Lecture One

Co-ordination Through Markets

Introduction

“Economists’ models of markets are simplified to allow rigorous analysis and only roughly approximate real markets. Yet microeconomic models incorporate concepts that are invaluable to the business strategist, and they provide a foundation on which to build structured analyses of real markets”

Corts and Rivkin 1999.

Demand Analysis

A buyer’s willingness to pay is influenced by a number of factors:

1 The price of the product

2 The buyer’s tastes or needs

3 A consumer’s income and wealth

4 Prices and availability of substitute goods

5 Complementary goods

 Ceteris Paribus, the law of demand states that as a product’s price falls more will be demanded.

Demand Curve

Price

Qd

Quantity

P0

P1

Q0 Q1

Demand Analysis:

Implications for Strategy

 Aids understanding of how a price change or shift in a related market affects aggregate output.

 Helps see how such changes alter the mix of buyers who are actively purchasing a product.

 Analysis of market / segments can be helpful in understanding how to expand the market.

 Highlight those areas where firms might take action to influence the size and shape of the demand curve.

Supply Analysis

 A firm’s supply decision consists of two decisions.

1. How much to produce

2. How to produce it.

The Production Function

Q = Q (K, L)

 Short and Long-Run decisions

Production Decisions

in the Short-Run

Market Wage

Q

Profit-Maximising

Quantity

Value of marginal

product of labour

Quantity of

workers

Value of marginal

product of labour p Q - P1 = 0 or p Q = P1 L L

Value of Marginal Product of labour = Cost of Labour (Wage)

Modeling Costs

ATC

AVC

AFC

Output

AC/AR

A

B

C

Supply Analysis:

Implications for Strategy

 Understand optimum scale of production

 Influence on the structure of the market

 Influences the nature of competition and competitive strategy

 Allows managers to predict how individual firms and the market as a whole will react to shifts in input costs and technology

Market Equilibrium P

Q

Supply

Demand

Pclearing

Plow

Qsupplied Qdemanded Qclearing

With a basic understanding of markets and market adjustment, a strategist can

not only predict the consequences of changes in supply and demand, but can

also make better sense of changes in prices and output

Perfect Competition

Three assumptions about the nature of the market underlie the discussion of market equilibrium:

1. Products are identical

2. Many, small participants (price-taking)

3. Full information

The idea that competition and imitation tend to erode profits is captured by economists’ models of perfect competition. This requires these additional conditions

4. Identical sellers

5. Free entry / exit