Both of these economic theories affect business performance in direct and indirect ways. Here’s what to look out for in an executive MBA program.
As responsibility grows during a career in business, it becomes increasingly important for executives to consider and react to the economic factors that dictate performance. These could include the disposable income levels of your customer base, the cost of transportation, or even loan interest rates.
This wide array of factors is commonly sub-divided into micro and macroeconomics. Analysis of these variables is open to interpretation. For instance, statistics may reveal that overall sales through smartphone apps are increasing, but it’s up to businesses to decide what to do with that information.
The terms macro and microeconomics may not be used specifically in the workplace, but they are indirectly crucial to every business decision. Here’s how they’re applied in business to ensure profit growth.
‘Macro’ derives from Greek and means ‘large’. In a business context it has become associated with the study of broad economic factors, including national statistics. This could include a country’s employment rate, Gross Domestic Product (GDP), inflation or banking interest rates. These factors are often politically influenced, because they can be dictated by changes to economic policy.
Opinion is divided over the relevance of macroeconomic factors in an average business setting. However, there is certainly merit for graduates of executive MBA courses to consider some of these issues. An increase in the minimum wage could lead to decreased profits, while decreasing tariffs with external markets could end up boosting some businesses.
Macroeconomic factors are particularly crucial for multinational companies. Entrepreneurs pay close attention to political, economic or social changes, which could result in the discovery of potentially profitable markets around the world.
If macroeconomics relates to top-down factors, then microeconomics is about looking at business from a bottom-up perspective. Rather than focusing on the economy in its entirety, this type of analysis focuses on the behavior and performance of specific customer groups, industries, or geographical areas.
One of the key considerations is supply and demand. Microeconomic analysis could discover a potential gap in the market for your target customer base, such as the potential to target more young professionals or retirees. A noted increase in the cost of living in a particular city could also have a negative impact on sales in that region. These are key considerations that give a more direct forecast of business performance.
Microeconomic analysis is also subject to interpretation. An examination of 7,000 economics studies, outlined in the Economic Journal, found that nearly 90% of them used sample sizes that were too small, and thus cast doubt on the efficacy of the findings. Students in an executive MBA program should therefore take a very close look at how each research study has been developed.
Micro and macroeconomic factors are closely linked in many different ways. A rise in national inflation makes the cost of doing business higher. For example, the price of raw materials is likely to rise, and transportation may become more expensive due to higher fuel costs. It’s almost impossible to study one of these economic theories without considering the other at the same time.
Skepticism surrounds the benefits of macroeconomic analysis, however. Entrepreneur Warren Buffett is one such dissenting voice, saying that it hasn’t influenced any of his investment decisions over a long career in business. Microeconomics is seen by many as the more effective means of business analysis, but it shouldn’t, and can’t, be judged on its own.
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