The Effective Group

In theory, working as a group is a wonderful idea. Allowing multiple individuals to work together and combine technical knowledge, differing perspectives, and even general competencies sounds wonderful. However, it seems all too often that group work goes wrong when too many people are involved. Things become overly complex, and as this happens bureaucracy needs to become ever more expansive to keep the organization running at all. So, is there a critical mass for a group? Somewhere between the realm of a partnership and a committee is there a perfect number of people such that the group may benefit from the amplified productivity effects of working together without getting bogged down in organizational gridlock?

I would say yes, and that in my experience teams of around 4 or 5 people tend to work very well together and maintain high effectiveness as well as high efficiency in their goals. In my own life, I have had the pleasure of being on such a team, and it was just last year in my Econ 471 class. Along with 3 group mates, my group and I were tasked with a project in which we were to come up with an economic question from "the real world" and source the data to analyze potential answers. My group mates and I had worked together on the homework in the past, so it was natural for us to form a group for the project. Since there were very few of us and we generally trusted each other we had no problems laying out our project and then going about completing it. After a single discussion of about five minutes, we agreed that we wanted to investigate the how meaningful different metrics of automotive fuel efficiency were in terms of how much they contributed to the perceived fuel efficiency, as compared to EPA and Consumer Reports estimates. Once we had this down all four of us divided up different variables and began farming data from many sources all over the internet. Since there were four of us doing this together, we got nearly all the data we needed at our first meeting. After that, it was a simple matter of combining the data into a single body and analyzing it with Stata. Once we had performed the analysis, we all wrote a bit of the final report and combined them into a comprehensive document. All in all, we got our project time without a single hitch.

This team was the most effective group I have worked with in recent memory. With hardly any need for decisive management, no shirking of work among any members, and task completion in less time than we expected, this was the perfect example of how a small group can be a perfect unit of effort.

Transaction Costs

Transaction costs seem to be omnipresent in all levels of decision making. Whether for isolated, individual choices or large, collective actions, it is important to consider such costs when making a particular decision and what they could mean with regards to efficiency. In the context of organizations, transaction costs can arise from any number of interactions, and if they are left unchecked they can result in highly ineffective outcomes for an organization. 

We discussed in class today the dynamics of decision making in a committee, which I found to be particularly interesting. As Professor Arvan described the gridlock that occurred from his experience on committees at the University, I could not help but take the insights he offered and apply them to my own experiences. I am currently the president of a rather small RSO here on campus, and viewing the executive board as a committee really drives home the idea of transaction costs for me. For example, my RSO decided to reboot its online marketing and communication strategy last year. At the time, we had almost no internet presence all. The only ways to find us online were on a derelict Facebook account which nobody could access and a homepage provided by the RSO office on Collegiatelink. 

So, we agreed that in order to effectively reach potential members we needed to increase our web presence. The first decision was easy. We could simply "go to the market" and create a new Facebook page with nothing more than a small time cost to us. The real issues arose when we began discussing how to go about creating our own website. We initially considered building a site from the ground up and hosting it on a free internet domain service. This course of action, however, would have required a great deal of web-page design, which none of us were knowledgeable and would therefore have meant seeking out somebody with the skills to create a website from scratch and potentially incentivizing them to create one for us. From there we discussed making a more "cookie cutter" site through a site builder service, but that led us to realize that such sites, especially the ones that give you a personal domain name, generally cost more than we were willing to pay. Ultimately we tabled the idea of having a dedicated website and focussed instead on our Facebook page. We put our marketing chair, who had some experience with digital editing and social media marketing, in charge of creating a new logo for our rebranding and adjourned our meeting on the matter. Since then, the Facebook page has not changed and there is still no logo for our club. While this most likely indicates poor management on my part, I think that this situation also illustrates the nature of transaction costs in an organizational setting. Once a course of action has been decided, each decision involved in implementing it has the potential to snowball into a project of its own, and without careful consideration of the costs involved can derail the plan entirely thus harming the organization in the long-run.

Daniel Kahneman

Daniel Kahneman is a renown psychologist that has contributed greatly to modern economic thought, particularly in the context of human behavior and consumer choice. Born in Israel in 1934, Kahneman began his academic career studying cognitive psychology and the role of judgement in decision making. His research in behavioral science led to publications regarding the thoughts and actions of individuals in a marketplace, and in 2002 he received the Nobel Prize for Economic Sciences for his innovative approach of using psychological research to provide insights regarding economic phenomena. For more information on Daniel Kahneman, such as affiliated institutions, well known publications, and an unofficial CV, vista the link below:

http://kahneman.socialpsychology.org