Organizational Conflict

After reading through Bolman and Deal's chapter regarding interpersonal and group dynamics, I realized that many of the same themes that pervade mainstream management theory are present in their discussion of organizational conflict. They begin with a focus on interpersonal skills and interaction, and then go on to describe factors such as emotional intelligence, management style, and both formal and informal roles within an organizational hierarchy. While these are most certainly important determinants of a groups interaction norms, I find that the chapter does not do much to mention what I find is the greatest source of conflict in an organization: task interdependence.

As I mentioned in last week's post, I work at as a server in a restaurant in my home town over my summers off of school. Overall, I would say that the restaurant team - managers, servers, kitchen, and bus staff - generally experienced a functional and productive amount of conflict. Process disagreements and constructive input were always accepted and appreciated, however leadership was careful to ensure that conflict within the restaurant never got to a level where it interfered with the productivity and satisfaction of the employees or customers. Thankfully, interpersonal conflict such as arguments and personal disagreements were minimal and generally could be worked through. What made the level of organizational conflict functional at the restaurant was the centrality of task interdependence as the source of the conflict. Since each separate team must be both internally functional and externally functional with the other teams to provide service, everyone needed to perform their own tasks efficiently while simultaneously communicating with others. For example, when managers communicated with the staff, it was always relating to what a team or individual was doing and how they were doing it. 

A common source of conflict was slow service. If a manager noticed that a party had been seated for a long time without being served or if a customer raised a complaint, he or she would immediately set about rectifying the mistake by identifying the source of the conflict and consulting the parties involved. For slow service, it meant that either the server was too slow to address the table, get their order, and input it into the ordering system, or that the kitchen did not receive the order or that they had overlooked it in some way (either due to lack of attention or confusion from busy service). Once the source of the conflict was identified, the managers would go about rectifying it by first informing the dependent team of their overlooked table or order, then informing the team or person at fault of their mistake. Finally, they would speak with the customers so as to inform them of the service timing they could expect. This management method allowed for constructive criticism when one's service was less than spectacular while simultaneously addressing potential breakdowns of communication between the service and kitchen teams. Ultimately, this seemed (to me at least) like an effective way to manage the intergroup conflict that arose from task interdependence.

Team Gift Exchange

When it comes to teams, the core principle is that the team is greater than the sum of its parts. That is to say, the team as unit can produce outcomes more effectively, efficiently, and generally perform its designated function better than if the individual team members were to do so independently. This axiom must be true in order for a team to be beneficial to an organization, and it is important to examine the structure of the team to see how members are motivated and how they are rewarded for their effort and performance.

In class, we discussed Akerlof's gift exchange model of compensation in which he outlines the positives and negatives of pay for performance as opposed to gifts (i.e. promotions) in different organizational structures. As an alternative to the traditional wisdom of pay for performance, Akerlof argues that in many cases individuals and team members are better motivated to put forth their best work for an organization when their performance is detached from their direct compensation. The article "How to Get the Rich to Share the Marbles" expands upon this idea by examining how the initial conditions and division of labor within a team affect people's decision to share the rewards of their effort. The article discusses the surprising results of an experiment conducted to see whether children would be willing to self-redistribute marbles given different conditions but always with the same work for each person.

By framing the examination of an effective team in these theories, some interesting observations arise. For example, I spend my summers working as a waiter in a high-end restaurant in my home town. This restaurant, which from my personal experience was a poster child of proper team work, followed many of the teachings that Akerlof and the marble experiment showed are relevant. To begin, each functional group within the restaurant had a place within the overall hierarchy and each division gave all of its members equal base pay. The lowest pay grades were the bus boys and dish staff, who received a fixed time-based income for their work regardless of how many tables they bussed or dishes they washed. Above them were the hostesses, who received a higher fixed wage but also kept any tips received from takeout orders, which they were in charge of processing. Then came my team, the servers and bartenders, who received a fixed wage lower than the hostesses and bus boys but were also paid in tips from their own tables. Then finally were the chefs and kitchen staff, who received the highest base pay as well as a small fraction of the tips earned from their individual tables. While each team needed to work with other teams in order for the restaurant to provide full and effective service, each team also functioned within itself to accomplish its aspect of service. Based on the nature of the work each team had to do, the managers decided that different combinations of pay for performance and gifts in the form of additional hours and promotions to higher paying teams were necessary to keep everyone properly motivated. This way, people who shared the burden of work equally with their team members would be paid a fixed wage and rewarded with gifts for their effort while people who functioned autonomously but ultimately fulfilled the same function would be compensated with base pay as well as pay for performance in the form of tips. Also, depending upon how busy a dinner service was, servers sometimes pooled their tips and received an equal cut thus equalizing the pay for performance. This restaurant as an organization follows many of the patterns that Akerlof outlined, and working there taught me a great deal regarding what people consider to be fair payment and what it takes to keep people within an organization continuously motivated to put forth their best effort for the team.

Risk Management

This past week, we have taken a look at the economics behind future risk management from the perspective of a rational actor. The model we have discussed makes assumptions such as perfectly rational behavior and knowledge of various potential outcomes, but it is highly descriptive when it comes to seeing how people act in the face of risk and uncertainty. In my own life, I have already taken many steps to reduce future risks, primarily in terms of my intended career path. While some of my decisions have been well planned and intentional, I'm certain that other actions have been indirectly determined by my personal level of risk aversion, despite not always knowing the likelihood of specific outcomes. For example: my choice to attend college. Although it does not take much convincing to explain why college generally improves one's potential outcomes (employment, financial security, etc.), I never really examined what going to college really meant until I got here.

When I was a freshman in introductory microeconomics, I was introduced to the concept of opportunity cost. One of the examples the professor used to illustrate the idea was his students' decision to pursue a university degree. In an economic sense, the total cost of a college education includes not only the direct monetary cost of tuition, but also the highest value alternative that could have been pursued. With tuition costing in the ball park of $30,000 per year in addition to the amount of money I could have made working in a minimum wage position for four years, college is quite an expensive ordeal. I am one of the students lucky enough to have my parents pay my tuition, but even still why would I choose to forgo several years of income to attend class and earn nothing? The answer, as you may have suspected, is my expected outcome in the years following college. Instead of choosing to end my education following high school and starting to accumulate income with relative certainty, I took a path with greater uncertainty in exchange for a lower risk. I am still unemployed as I approach my graduation date, but there is a greater chance of me finding a suitable career with more competitive than if I had not chosen to attend college.

Another example of such behavior I have seen is my older sister's decisions following her college graduation. She is seven years older than I am, and is a University of Illinois alumnus. After making a similar decision to attend college rather than taking low paying but certain income, she began work for Delta Airlines as an analyst after her graduation. Then, after a few years of working, she decided to quit her job and pursue an MBA. Despite having a rather comfortable income after college, she did not have enough saved to pay for business school at Duke Fuqua School of Business. So, she took out student loans and took on a great deal of debt. She has since earned her MBA and found a job as a marketing manager with nearly double the income she had working at Delta. In other words, the potential value of improvement in her position brought about by earning an MBA was worth far more to her than the monetary value of her student debt and the forgone income from quitting her job.

While these examples are slightly more abstract than the insurance model we have been using to describe risk aversion and management, I think that both my sister's and my decisions regarding our educational paths are strong real-life examples of rational agents choosing a higher long-run payoff that is less certain over lower short-run payoffs that are more certain.

Illinibucks and Allocation

Here at the University of Illinois, we as students become conditioned to the idea of waiting for services and goods that we need. With 50,000 undergraduate students alone, this phenomenon is to be expected. Whether they manifest themselves as wait lists for admission, competition for scarce class availability, or even something as simple as waiting in line to checkout at the Illini Union Bookstore. I myself experience this everyday.

Just a couple weeks ago, I attended the Business Career Fair along with thousands of my peers and waited in line for hours over the course of two days simply to get a few minutes with recruiters from various companies. Students from nearly every college, LAS, the College of Business, the College of engineering, and so forth were all swimming among the crowds of people just to get a shot at an interview. Some of the people in line were simply there to get extra credit for career preparation courses, while others were graduate students looking for an experienced hire positions. While I understand this is simply a part of the recruitment process, I couldn't help but think that there must be a more efficient way to allocate applicants to recruiters. In this sense, the idea of "Illinibucks" could be that more efficient system. So long as a scarce number of Illinibucks are issued to students, then they could buy, sell, and trade to fit their needs. This would increase efficiency because students willing to spend more Illinibucks to achieve their personally optimal utility from various university services could do so, and those willing to spend less would thus receive lower priority.

In many of my economics courses to date, we have discussed similar cases of allocative efficiency using the idea of vouchers. A popular example is for public eduction. Why should students have to expect a certain quality of education because of where they live or whether their parents can afford to send them to a private school? Given a government voucher system, it is arguable that those who have the most to gain, i.e. would get the most utility out of a certain school, could use their voucher to opt out of public school and apply that implicit subsidy to private education. Alternatively, many scholars have discussed the benefits of cap and trade emissions regulation by issuing a finite number of pollution vouchers and allowing companies to trade amongst themselves to achieve efficient allocation of pollution allowances without exceeding an aggregate cap.

In relation to our class discussion of transaction costs, I believe that an Illinibucks system based on free trade between students could truly alleviate some of the congestion that occurs when trying to run such a large bureaucracy. This in turn could increase allocative efficiency of services to students and thus solve the issues we have in terms of getting priority for certain services.