Tài liệu Microeconomics for MBAs 17 doc

Chapter 5 The Logic of Group Behavior In Business and Elsewhere 29 increases. The workers have to worry about the inclination of each worker group to garner firm profits at the expense of other groups and the investors. The workers also have to worry that they have taken over the role of the investors, which is accepting the risk that comes from being residual claimants. The workers’ insecurities can be heightened by the fact that the company’s future will be jeopardized by the absence of the capital that it will need to remain competitive with investor-owned airlines that don’t have the problems and fears that United might have. We should not be surprised if, at some later date, the workers effectively try to “buy back” some security by selling their stake in their company, giving the investors that right to be tough bosses in exchange for more investment funds and a more certain income stream for workers (with more of their income coming from wages, salaries, and fringe benefits and less of it coming from dividends). Management Snooping Technology has given workers a chance to loaf on the job while they appear busy at their desk. All workers have to do is surf the web for entertainment, shopping, and sex sites on their office computers while giving passersby (including their bosses) the impression that they, the workers, couldn’t be more focused on company business. And workers are often good at acting busy and engaged. At the same time, technology is coming to the rescue of manager/monitors – or bosses who want to be really tough, if not oppressive. Programs such NetNanny, SurfWatch, and CyberPatrol enable managers to block worker access to web sites with certain words on the site, for example, “sex.” However, with the aid of a program called com.Policy from SilverStone Software, managers now can, from their own desktop computers, go much further and check out what worker’s have on their computer screens. The software can take a snapshot of the worker’s computer screen and sends it, via the local area network, to the boss’ screen. If a worker visits an XXX-rated web site or writes a love note to a coworker or someone across the country, managers can know it, and, depending on how tough they want to be, the managers can penalize or dismiss the workers for using company equipment for personal use. Presumably, the managers can, with the aid of the software, increase worker productivity, given that the penalties or threat of penalties, can eliminate worker shirking. The real question is Should managers use technology that allows them to “snoop” (to use the characterization of the technology’s critics)? Would workers want them to use it? Clearly, there are good reasons managers and workers alike would not want to use the software, it represents an invasion of worker privacy. Many managers and, we suppose, almost all workers, find “snooping” distasteful. But, as in all other business matters, the worker problems must be weighed off against the benefits to the firm and workers. Workers might not want their privacy invaded at the whim of their bosses, but the workers can understand the now familiar prisoner’s dilemma they are in -- one in which many of the workers might be inclined to misuse their office computers for private gain (entertainment, maintenance of love affairs, and sexual stimulation). In large offices, the Chapter 5 The Logic of Group Behavior In Business and Elsewhere 30 workers can reason that everyone else is misusing (at least to some extent) their computers, that their individual misuse will have an inconsequential impact on the firm’s profitability or survivability, and that they each worker should do what everyone else is doing, take advantage of the opportunity to misuse their computers – even though long- run firm profits and worker wages will suffer as a result of what the workers do (or, rather, don’t do). Accordingly, workers could welcome the invasion of their privacy, primarily because the gain in income and long-term job security is of greater value than the loss of privacy. Managers can use the software simply because they are doing what their stockholders and workers want them to do, make mutually beneficial trades with their workers, which is, in this case, ask them to give up some privacy in exchange for the prospects of higher wages and security. At the same time, we should not expect that the above deduction will apply in every worker group. Some worker groups will value their privacy very highly, so highly in fact that in some instances the managers would have to add more to worker wages than the firm could gain in greater productivity from use of the monitoring software. In such cases, use of the software would be nonsensical: it would hurt both the workers and the firm’s bottom line. Put another way, some bosses aren’t as tough as they might want to be simply because, beyond some point, toughness – added “snooping” -- doesn’t pay; it can be a net drain on the company. Critics of the snooping software are prone to characterize it as “intrusive,” if not “Orwellian.” One such critic was reported to have reacted to the software’s introduction with the comment, “It worries me that with the assistance of a variety of tools that every moment of a person’s workday can be monitored. Workers are not robots that work 24 hours a day without ceasing.” 44 We simply don’t see the matter in such black and white terms. The old quip “different strokes for different folks” contains much wisdom, especially in business. We see nothing wrong with employers warning their employees, “The computers are the firm’s, and we reserve the right to snoop on what you are doing with the firm’s equipment as we see fit.” To the extent that the (potential) snooping is seen as a threat to workers, the firm would have to pay in higher wages for the snooping bosses might do. If they did not pay a higher wage for the announcement, workers could be expected to go elsewhere, where the firm explicitly rules out snooping. What is understandably objectionable to employees is the snooping when it is not announced or, worse yet, when managers profess, or just intimate, that they will not use the available technology, but then snoop at will. Such managers not only violate the privacy and trust of their workers, they engage in a form of fraud. They effectively ask their workers to take a lower rate of pay than they would otherwise demand, and then don’t give their workers what they pay for, privacy. Moreover, such after-the-fact snooping doesn’t do what the firm wants, increase beforehand the incentive workers have to apply themselves. 44 As quoted in Lisa Wirthman, “Superior Snooping: New Software Can Catch Workers Goofing Off, But Some Say Such Surveillance Goes Too Far,” Orange County (Calif.) Register, July 20, 1997, p. 1 and 10 (connect section). Chapter 5 The Logic of Group Behavior In Business and Elsewhere 31 Unannounced snooping is just poor management policy on virtually all scores. With announced snooping policies, workers can sort themselves among firms. Those workers who value their privacy or on-the-job entertainment highly can work for firms that don’t snoop. Those workers who value their privacy very little can work for firms that announce that they might snoop. “Different strokes for different folks” can be a means of elevating on-the-job satisfaction. What firms would be most likely to use the monitoring software (or any other technology that permits close scrutiny of worker behavior)? We can’t give a totally satisfactory answer. Workplace conditions and worker preferences are bound to vary across industries. But we can say with conviction that there is no “one-size/fits-all” monitoring policy. We can only imagine that different firms will announce different levels of snooping -- with some firms ruling it out, other firms adopting close snooping, and still others announcing occasional snooping. And many firms with the same level of snooping can be expected to impose penalties with different levels of severity. Although we can’t say much in theory about what firms should do, we can note that the snooping software, and similar technologies, would more likely be used in “large” firms where the output of individual workers is hard to detect, measure, and monitor than in “small” firms where output is relatively easy to detect, measure, and monitor precisely because each worker’s contribution to firm output is such a large share of the total. The snooping technology would not likely be used among workers whose incomes are tied strongly to measures of their performance, for example, sales people who are on commission and far removed from the company headquarters. Such workers will suffer a personal cost if they spend their work time surfing the web or writing love notes. Managers should be little more concerned with such workers’ misuse of their company computers than they are concerned about how their workers use their paychecks at the mall. If such workers are not performing (because they are “spending” too much of their pay on net surfing), then the firm should consider the prospect that they need to increase the cost of wasted time by more strongly tying pay to performance (a subject to which we return in a later chapter). By implication, managers will not likely use the software to monitor employees who are highly creative. “Creativity” does not always happen when workers diligently apply themselves, and often occurs precisely because workers are relaxed, with the ability to do as they pleased without fear of being penalized for goofing off. Firms would probably be more inclined to use the software with employees who are paid by the hour and have little or no personal payoff from working hard and smart. It should go without saying that the more workers value their privacy, the less likely monitoring software will be used. This is because the more workers value their privacy, the more managers would have to pay in higher wages to invade the privacy. The Reason for Corporations Competition determines which business arrangements will survive and which will not. The prevalence of single proprietorships is explained by the advantage of this business Chapter 5 The Logic of Group Behavior In Business and Elsewhere 32 form in producing those products the consumers want as inexpensively as possible. But changing circumstances can reduce the competitive advantage of a business arrangement as new arrangements are found to do a better job of organizing productive activity. Technological advances that took place during the latter part of the nineteenth century made it possible to realize huge economies from large scale production in many manufacturing industries. These technological advances shifted the advantage to business organizations that were far too large to be owned and managed by one proprietor, or even by a few. But the advantage of large business firms is reduced by the fact that they make it impossible to concentrate the motivation created by ownership entirely in the hands of those making management decisions. Those manufacturing firms that developed organizational arrangements that did the best job of reducing the disconnection between the owners’ incentives and the managers’ control were best able to take advantage of economies from large-scale production. The result was a competition that resulted in the development of the modem corporation, the business form that today accounts for most of the value produced in the United States economy, even though small owner-managed firms still make up, by far, the largest number of firms in the economy. However, it must be remembered (contrary to what is often taught in business books) that the corporation (an organization under which investors have limited liability) was not a creation of the state. 45 The corporation emerged before states got into the incorporating business. Groups of private investors formed corporations because they believed that there were economies to be had if they all agreed to create a business in which outside parties could not hold the individual investors liable for more than their investment in the corporation (that is, the investors’ personal fortunes would not be at risk from the operation of the firm, as was and remains true of proprietorships and partnerships). Clearly, such a public announcement of limited liability (made evident with “Inc.” on the end of corporate names) might make lenders weary and cause them to demand higher interest rates on loans. However, the firm would have the offsetting advantage of being able to attract more funds from more investors, increasing firm equity, a force that could not only increase the firm’s ability to achieve scale economies grounded in technology, but would lower risk costs to lenders. Of course, the outside investors could be hard taskmasters, given that they could shift their investment away from firms not maximizing profitably. But that doesn’t mean the workers would find the corporate form unattractive. On the contrary, given the potential scale economies and risk reductions, corporations may provide more secure employment than small proprietorships. Jack Welch, the chief executive officer of General Electric, has played out the central point of this “Manager’s Corner” because he surely qualifies as a tough boss. 45 Robert Hessen, In Defense of the Corporation (Stanford, Calif.: Hoover Institution Press, 1979) develops this view of the corporation. Chapter 5 The Logic of Group Behavior In Business and Elsewhere 33 Indeed, Fortune once named Welch “America's Toughest Boss.” 46 Welch earned his reputation by cutting payrolls, closing plants and demanding more from those that remained open. Needless to say, these decisions were not always popular with workers at GE. But today, GE is one of America's most profitable companies, creating far more wealth to the economy and opportunities for its workers than it would have if the tough and unpopular decisions had not been made. In Welch's words, “Now people come to work with a different agenda: They want to win against the competition, because they know that . . . . customers are their only source of job security. They don't like weak managers, because they know that the weak managers of the 1970s and 1980s cost millions of people their jobs.” 47 MANAGER’S CORNER II: The Value of Teams The central reason firms exist is that people are often more productive when they work together -- in “teams” -- than when they work in isolation from one another but are tied together by markets. “Teams” are no passing and empty management fad. Firms have always utilized them. What seems to be new is the emphasis within management circles on the economies that can be garnered from assigning complex sets of tasks to relatively small teams of workers, those within departments and, for larger projects, across departments. However, “teams” also present problems in the form of opportunities for shirking (which should be self–evident to many MBA students who form their own study and project groups to complete class assignments). A central problem managers face is constructing teams so that they minimize the amount of shirking. At its defense avionics plant, Honeywell reports that its on-time delivery went from 40 percent in the late 1980s to 99 percent at the start of 1996, when it substituted teams, in which workers’ contributions are regulated by the members, for assembly-line production, in which workers’ contributions are regulated extensively by the speed of the motors that drive the conveyor belts. Dell Computer is convinced that its team-based production has improved quality in its made-to-order mail-order sales. Within twelve months of switching to teams in its battery production, a different company, Electrosource, found its output per worker doubled (with its workforce dropping from 300 to 80 workers). 48 If people could not increase their joint productivity by cooperating, we would observe individual proprietorships (with no employees other than the owners) being the most common form of business organization and also the form that contributed most to national production. As it is, while proprietorships outnumber other business forms (for example, partnerships and corporations) by a wide margin, they account for only a minor fraction of the nation’s output. Even then, many proprietorships can’t get along without a few employees. Single-worker firms tend to be associated with the arts. Few artists have 46 Noel M. Tichy and Stratford Sherman, "Jack Welch's Lessons for Success," Fortune (25 January 1993) pp. 86-93. 47 Ibid. p. 92. 48 As reported in Paulette Thomas, “Work Week: Teams Rule,” Wall Street Journal, May 28, 1996, p. A1. Chapter 5 The Logic of Group Behavior In Business and Elsewhere 34 employees. Even we are writing this book as a partnership in the expectation that our joint efforts will pay off in a better book than either of us could write alone. We are a “team” of a sort. But notice there are only two of us, and we aren’t about to write a book with a number of others, for reasons explained below. As important as teams can be in business, managers must recognize inherent incentive problems that limit the size of productive teams. Team Production To be exact, what do we mean by “team production”? If Mary and Jim could each produce 100 widgets independent of one another and could together produce only 200 widgets, there would be no basis for team production, and no basis for the two to form a firm with all of the trappings of a hierarchy. The added cost of their organization would, no doubt, make them uncompetitive vis a vis other producers like themselves who worked independently of one another. However, if Mary and Jim could produce 250 widgets when working together, then team production might be profitable (depending on the exact costs associated with operating their two-person organization). Hence, we would define team production as those forms of work in which results are highly interactive: The output of any one member of the group is dependent on what the other group members do. The simplest and clearest form of “team work” is that which occurs when Mary and Jim (and any number of other people) move objects that neither can handle alone from one place to another. The work of people on an assembly line or on a television-advertising project is a more complicated form of teamwork. Granted, finding business endeavors that have the potential of expanding output by more than the growth in the number of employees is a major problem businesses face, but it is not the only problem and may not be the more pressing day-to-day problem when groups of people are required to do the work. The truly pressing problem facing managers on a daily basis is making sure that the synergetic potential of the workers who are brought together into a team is actually realized, that is, production is carried out in a cost-effective manner, so that the cost of organization does not dissipate the expanded output of, in our simple Mary/Jim example, 50 widgets. 49 We often think of firms failing for purely financial reasons. They don’t make a profit, or they incur losses. Firms are said to be illiquid and insolvent when they fail. That view of failure is instructive, but the matter can also be seen in a different light, as an organizational problem and a failure in organizational incentives. A poorly run organization can mean that all of the 50 “extra” widgets that Mary and Jim can produce together are lost in unnecessary expenditures and impaired productivity. If the organizational costs exceed the equivalent of 50 widgets, then we can say that Mary and Jim have incurred a loss, which would force them to adjust their practices as a firm or to part ways. 49 We remind the reader that “cost” is the value of that which is foregone when something is done. Cost can be measured in money, but the real cost is the value of that which is actually given up. Chapter 5 The Logic of Group Behavior In Business and Elsewhere 35 Many firms do fail and break apart, not because the potential for expanded output does not exist, but because the potential is not realized when it could be. The people who are organized in the firm can do better apart, or in other organizations, than they can together. That’s what we really mean by reoccurring business “losses.” Why can’t people always realize their collective potential? There is a multitude of answers that question. Firms may not have the requisite product design or a well- thought-out business strategy to promote the products. Some people just can’t get along; they rub each other wrong when they try to cooperate. Nasty conflicts, which deflect people’s energies at work to interpersonal defensive and predatory actions, can be so frequent that the production potentials are missed. While recognizing many non-economic explanations for organizational problems, we, however, would like to stay with our recurring theme, that incentives always matter a great deal and they can become problematic within firms. Our general answer to our question, why firms’ potential can go unrealized, is that frequently the firm does not find ways to properly align the interests of the workers with the interests of other workers and the owners. They don’t cooperate like they should. In our simple firm example, involving only two people, Mary and Jim, each party has a strong personal incentive (quite apart from an altruistic motivation) to work with the other. After all, Mary’s contribution to firm output is easily detected by her and by Jim. The same is true for Jim. Moreover, each can readily tell when the other person is not contributing what is expected (or agreed upon). Each might like to sit on his or her hands and let the other person carry the full workload. However, the potential is not then likely to be realized, given that the active participation of both Mary and Jim is what generates the added production and their reason for wanting to become a firm (or team) in the first place. Furthermore, Jim can tell when Mary is shirking her duties, and vice versa, just by looking at the output figures and knowing that there is only one other person to blame. Accordingly, when Mary shirks, Jim can “punish” Mary by shirking also, and vice versa, ensuring that they both will be worse off than they would have been had they never sought to cooperate. The agreement Mary and Jim might have to work together can be, in this way and to this extent, self-enforcing, with each checking the other -- and each effectively threatening the other with reprisal in kind. The threat of added cost is especially powerful when Mary and Jim are also the owners of the firm. The cost of the shirking and any “tit for tat” consequences are fully borne by the two of them. There is no prospect for cost shifting. Two-person firms are, conceptually, the easiest business ventures to organize and manage because the incentives are so obvious and strong and properly aligned. Organizational and management problems can begin to mount, however, as the number of people in the firm or “team” begins to mount. Everyone who joins a firm may have the same objective as Mary and Jim -- they all may want to make as much money as possible, or reap the full synergetic potential of their cooperative efforts. At the same time, a number of things can happen as the size of Chapter 5 The Logic of Group Behavior In Business and Elsewhere 36 the firm or “team” grows in terms of more employees. Clearly, communication becomes more and more problematic. What the boss says can become muffled and less clear and forceful as the message is spread through more and more people within the firm. Also, and probably more importantly, as explained in the “logic of group behavior,” incentives begin to change with the growth in the size of groups. Foremost, each individual’s contribution to the totality of firm output becomes less and less obvious as the number of people grows. This is especially true when the firm is organized to take advantage of people’s specialties. Employees often don’t know what their colleagues do and, therefore, are not able to assess their work. When Mary is one of two people in a firm, then she is responsible for half of the output (assuming equal contributions, of course), but when she is one of a thousand people, her contribution is down to one-tenth of one percent of firm output. If she is a clerk in the advertising department assigned to mailing checks for ads, she might not even be able to tell that she is responsible for one-tenth of a percent of output, income, and profits. If Mary works for a firm with several hundred thousand workers, you can bet that she has a hard time identifying just how much she contributes to the firm. She can’t tell that she is contributing anything at all, and neither can anyone else. She can literally get lost in the company. If she doesn’t contribute, she and others will have an equally difficult time figuring out what exactly was lost to the firm. Her firm’s survival is not likely to be materially affected by what she does or does not do. She is the proverbial “drop in the bucket,” and the bigger the bucket, the less consequential each drop is. Of course, the same could be said of Jim and everyone else in the firm. Now, it might be said that all of the “drops” add up to a “bucket.” The problem is that each person must look at what he or she can do, given what all the others do. And drops, taken individually, don’t really matter, so long as there are a lot of other drops around. Admittedly, if no one else contributes anything to production (there are no other drops in the bucket), the contribution of any one person is material -- in fact, everything. The point is that in large groups and as output expands, each worker has an impaired incentive to do that which is in all of their interests to do -- that is, to make their small contribution to the sum total of what the firm does. All workers may want the bucket to get filled, but to do so takes more than wishful thinking, which often comes in the form of assuming that people will dutifully do that which they were hired to do. The point here is that large-number prisoners’ dilemmas are more troublesome than small-number prisoners’ dilemmas. A central lesson of this discussion is, as stressed before, not that managers can never expect workers to cooperate. We concede that most people do have – very likely because of genetics and the way they were reared -- a “moral sense,” or capacity to do what they have committed to doing -- that they will cooperate, but only to a degree, given normal circumstances. However, there are countervailing incentive forces embedded in the way groups – or teams – of people work that, unless attention is given to the details of Chapter 5 The Logic of Group Behavior In Business and Elsewhere 37 firm organization, can undercut the power of people’s natural tendencies to cooperate and achieve their synergetic potential. If people were total angels, always inclined to do as they are told or as they said they would do, then the role of managers would be seriously contracted. Even if almost everyone were inclined to do as they were told or committed to doing, still managers would want to have in place policies and an organizational structure that would prevent the few “bad” people from doing real damage to the firm, which, if left unchecked, they certainly could do. The arguments presented also help us answer several questions. Why are there so many small firms? Many commentators give answers based on technology: Economies of scale (relating strictly to production techniques and equipment) are highly limited in many industries. One very good organizational reason is that many firms have not been able to overcome the disincentives of size, making expansion too costly and uncompetitive. Why are large firms broken into departments? While it might be thought that the administrative overhead of department structures, which requires that each department have a manager and an office with all the trappings of departmental power, is “unnecessary,” departments are a means firms use to reduce the size of the relevant group within the firm. The purpose is not only to make sure that the actions of individuals can be monitored more closely by bosses, but also that the individuals in any given department can more easily recognize their own and others’ contributions to “output.” Why do workers have departmental bosses? One reason is that the owners want their instructions to be carried out. Another explanation, one favored by UCLA economists Armen Alchian and Harold Demsetz, is that the workers themselves want someone who is capable of monitoring the output of their co-workers, to prevent than from shirking and to increase the incomes and job security of all workers. 50 Workers want someone who is given the authority to fire members who shirk. As discussed under “Manager’s Corner I,” if owners didn’t create bosses, then the workers probably would want them created in many situations for many of the same reasons and from much the same mold as do owners. Why is there so much current interest in “teams”? As acknowledged, we suspect that the concept of teams in industry has always been around and used for a long time. After all, we have worked as members of “teams” (mainly, departments of business and economics professors) for all of our careers. However, it is also likely that over recent decades, managers probably became far too enamored with the dictates of “scientific management,” which focused on the means of controlling workers with punishments and rewards that come from bosses who are outside (and above) the workers’ immediate working group. Managers tried with some success to reduce shirking with the introduction of the assembly lines, under which the speed of the assembly-line belt determined how fast workers worked (with the presumption that workers would not have much leeway to adjust behavior, which might have been true for the pace of the work 50 Armen Alchian and Harold Demsetz, “Production, Information Costs, and Economic Organization,” American Economic Review, vol. 62 (1972), pp. 777-795. Chapter 5 The Logic of Group Behavior In Business and Elsewhere 38 done but not the quality). In the past, many managers have overlooked the impact of team size on member incentives. They have now begun to realize that they can increase worker productivity by reducing the size of the relevant group, to ensure that workers, who know most about what needs to be done in many firms, can monitor each other. Workers in appropriately sized teams can monitor and direct each other’s work. Such close-at-hand monitoring can become even more important when consumers begin to demand more emphasis on quality, as they already have. We also suspect that the modern interest in “teams” is driven by newfound global competition and by the growing sophistication of work in many industries. Those firms, domestic and foreign, that have employed teams successfully have forced other firms with traditional top-down management/control structures to also consider teams to keep up with the competition. Technology has greatly elevated the sophistication of production, increasing the specialization of work with much of the knowledge of what can be done in production known only by the people who actually do the jobs. Bosses can know a lot, but they can’t possibly know many of the things that their workers know. Managers must delegate decision-making authority to those who have the detailed knowledge to make the most cost-effective decisions, which, when production is interdependent or done jointly by a number of people, means decisions must be made by teams of workers. As a consequence of the benefits of team production, we should not be surprised that at Motorola’s Arlington Heights cellular phone plant, team members participate in the hiring and firing of co-workers, determine training, and set work schedules. At Nucor Steel, teams can discipline their members. At both companies, the team-based plants are remarkably productive. At the same time the team members are delegated decision-making authority, they must also shoulder responsibility for the decisions they make. That necessarily means that team members must share the rewards from good decisions and the costs from bad ones. Often, this can mean that production bonuses are tied to what the team as a whole accomplishes, not what individual members do. Often, it also means that when the decisions are systematically bad, then the entire team must be dismissed, not just individuals. If individuals can be chosen as scapegoats for the actions taken by their team, then all individuals will have an incentive to “game” the process, trying to shirk and then pinning the blame on others. Team members will then have less incentive to work together and more incentive for political intrigue, possibly corrupting the working relationship of all. A natural question that is bound to puzzle business managers interested in maximizing firm output is, How large should teams be? How many members should they have? We obviously can’t say exactly, given the many factors that explain the great variety of firms in the country. (If we could formulate a pat answer, this book would surely sell zillions!) However, we can make several general observations, the most important of which is that managers must acknowledge that shirking (or “social loafing”) will tend to rise along with the size of the group, everything else held constant. . within departments and, for larger projects, across departments. However, “teams” also present problems in the form of opportunities for shirking (which should. proprietorships outnumber other business forms (for example, partnerships and corporations) by a wide margin, they account for only a minor fraction of the nation’s