Clearly, there are good reasons managers and workers alike would not want to use the software, it represents an invasion of worker privacy.. Some worker groups will value their privacy v
Trang 1increases 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
Trang 2workers 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)
Trang 3Unannounced 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
Trang 4form 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
Trang 5Indeed, 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
Trang 6employees 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
Trang 7Many 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
Trang 8the 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
Trang 9firm 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
Trang 10done 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