Economic View of Organisation

Existence of persistent performance differences in organisations indicate that organisations matter

Studying Management Practices

* Measure management practices according to: Monitoring, Target, Incentives
* Use a survey measuring 18 dimensions with a score from 1 to 5

Organisational design problem is complex/multifaceted.

With economic view, firms need to ***allocate*** resources and guide the ***specialisation*** and ***beneficial interaction*** of it's members.

To do this they need to solve problems of ***motivation*** and ***coordination***

Economic view? People respond to incentives, people react predictably.

Predictable? People are rational and self interested, Workers evaluate personal costs and benefits, Will try to max utility

Specialisation implies division of labour. Allows learning economies of scale, economising set up/switching costs, process innovation, worker skill matching

Specialisation also leads to more coordination and worker dependence on one another.

Coordination is managing interdependencies between workers.

Increased output does not necessarily mean coordination is harder.

Coordination can be difficult however. Information may not be perfect. Coordinating decisions may be difficult.

With full information, the minimum cost will always be the case.

If there is no communication, workers are not aware of each other's costs and workers decide by themselves what to do.

* Decision rules: Can only decide based on own cost.
* Threshold rule: Go if cost less than some value

If there is Centralisation, managers decide where the ambulances go but they do not know the costs of the ambulances.

* Decision rules: Can't decide on cost, only once ambulance may go

Solution to coordination problems are uncertain. Firms can coordinate or deal with new information in various different ways. Dependent on the situation, the firm my coordinate or decentralise.

Motivation is the inducement of a specific behaviour in an organisation

Organisations want workers not to just make an effort but to care about things. They want the worker to care about quality, process, good work environments, making good decisions.

Owners should just ask the workers to act a certain way since monitoring people constantly is impossible. There are hidden actions and hidden informations that the workers know better and are costly for owners to find out. Hidden actions and hidden information is the main source of tension between workers and owners (principle-agent problems).

Organisations thus need to know what workers value: Extrinsic stuff like pay, holidays, discounts, working environment or Intrinsic stuff like company values, self-image, fairness, etc.

Organisations need to design jobs so that it can provide extrinsic benefits or contains intrinsic values to attract workers. There needs to be a system to provide benefits.

Solving questions:

Draw graph

Approach logic to this type of question is game theory like. What would 1 do in this case? What would 2 do in this case.

Got through cost one by one on the graph and see what each worker will do.

If information is known, workers and management will try to avoid duplication.

If there is no information, there will be duplication.

If the management knows information about one worker of the workers, they will send the worker they know about with higher priority unless there is a possibility that the unknown worker can do the work with less cost.