european journal of social sciences issn: 1450-2267 - EuroJournals

European Journal of Social Sciences – Volume 5, Number 3 (2007)
The Economic/Systems Perspective of the Business Organization
Understanding how forces in the product and service market impact human resource planning and
deployment – and effectively managing them – make the difference between the economic success or
failure of the firm. One important concept linking the firm’s human resource market with its
product/service market is the economic principle of derived demand. This principle was primarily
elaborated upon by the late 19 th century economist Alfred Marshall and was employed in his use of
supply and demand analysis of product prices in relationship to their factors of production i.e.,
resources. While the demand for a product is traceable directly from consumer preferences, wants and
income; the demand for the respective inputs is derived from the market demand of the product
(Friedman, 1976).
When viewed with the economist’s eye, the organization represents an entity that procures raw
inputs, transform the raw inputs in some fashion, and then provide outputs. The nature of the business
and its technology determines the type of transformation that occurs in between the input and output
stages. For example, if a company sells lumber, the raw inputs are trees, the transformation might be
sizing, cutting, treating. The outputs are boards for building materials delivered to retailers. The
primary function of the organization is to turn trees into building material. In addition to the primary
function of the organization (the transformation process), most organizations require a number of
support functions to operate effectively. A lumberyard may find it necessary to provide other business
functions such as accounting support, mechanical support, sales support and transportation. These
duties do not add directly to the profitability of the organization, and thus are often regarded as costs.
In Figure 1 we illustrate the economic/systems perspective of the organization. We can begin
by understanding the general types of inputs and processes. For example, the input side is actually a
depiction of the firm’s resource market and the output side is a depiction of the firm’s product/service
market. The business itself consists of structured functional activities designed to produce outputs or
services of value. The magnitude of derived demand is affected by the changes and levels of a firm’s
profitability and/or inventory. When looking at the resource/input side, it is always good to remember
that these are separate markets; markets for capital, markets for materials, and markets for resources.
Figure 1: The Economic Perspective of the Organization for Human Resources
Resource Market
(Inputs)
Demand for
Human
Resources
Business Organization
(Transformation))
Organizational
Structure & Design
Derived Demand
•
•
Technology
Functions
Derived Demand
• Operations
• Marketing
• Finance
• Accounting
• Etc.
Environmental Forces
Degree of:
1. Uncertainty
2. Stability
3. Complexity
4. Changes in
Technology
89
Product/Service Market
(Outputs)
Demand of
Consumers