Peer Groups
The fourth of the organizational modes in Oliver Williamson's Economic The Economic Institutions of Capitalism are Peer Groups. A Peer Group factory is communally owned, but rather than being paid for their own products which they make from start to finish under Communal-emh, each worker is compensated equally based on the factory output. Workers may rotate stations as desired. Rather than devolving into negotiation over every detail, the workers elect leaders to make tactical, operational decisions, while strategic decisions are still made collectively (consensus or majority rule). The leader elections should rotate to avoid any hierarchy.
They have the following features:
Efficiencies:
a. Product flow
1. Transportation expense - Everything is under one roof, relatively economical
2. Buffer inventories - The system is flexible enough that it is unnecessary to keep buffer inventories in theory
3. Interface leakage - Since workers are sharing the outcome, there is incentive to monitor, report, and control leakage in theory
b. Assignment attributes
4. Station assignments- Since decisions and leadership selections are made democratically, it is possible for manipulators, demagogues, and self-promoters to get what they want even if this is not the most efficient outcome. There is opportunity for log-rolling: you vote me to be the QA inspector and I will vote you to be the buyer. Neither of us is very good at our job, but we can get at least 2 votes that way.
5. Leadership - The comments above about voting, log-rolling, rotation, and popularity all hold for leadership selection efficiency.
6. Contracting - As mentioned above, there is little need for contracting, so this is an efficient organization for that characteristic
c. Incentive attributes
7. Work intensity- Since pay is by average productivity and not marginal productivity, there is little incentive to work harder. Another Tragedy of the Commons: my hard work will benefit my neighbor as much as me, but I will enjoy all of my own laxity. Slacking will be overproduced.
8. Equipment utilization- Workers will note the abuse of equipment and seek to minimize it because everyone suffers equally. Does this seem to contradict the previous point? I think not, since it is easier to prove that your neighbor is letting his equipment deteriorate than to prove he is not working as hard as he possibly can.
9. Local shock responsiveness- All workers share in the outcome equally, so when one station or worker is broken down, it is in their interest to solve the problem.
10. Local innovation- Again, everyone stands to benefit from innovations made, so workers will enthusiastically accept new ideas. Or will they? Some people will resist change for the sake of resisting it, and if they are good at arguing their point, they will prevail in a democratic organization. However, this works in the opposite direction, also.
11. System responsiveness- The group makes tactical decisions through an elected agent, so it should respond well to immediate problems, and it makes strategic decisions through consensus, so it should respond well to longer term problems, but it will not respond quickly. Japanese corporations are largely run this way, and they seem to adapt quite well.
Again, Quality Control is not explicitly addressed. It seems that this mode would be economical with respect to such practices as continuous improvement and team production which rely on consensus.
Bottom line: Williamson finds the Peer Group to be of mixed hierarchy (low in contractual, high in decision-making), and very efficient (scoring positive on 8 of 9 tests). In some ways, Deming management principles emphasize consensus-based decision-making, so many of the operations would be similar to what is already seen in Japanese and Lean manufacturing environments. However, there is still a concern that "the management" would become highly politicized and unwilling to face or confront hard problems.
organization theory "Oliver E. Williamson" "Transaction Cost Economics" book review "lean manufacturing" "lean production"
They have the following features:
- The second of the two Collective Ownership modes (as opposed to Entrepreneurial and Capitalist modes)
- I'm not familiar with lots of examples of actual attempts to organize along these lines, though there may be some. Owens Societies followed something like this, but were relatively unsuccessful. Workers attempting to establish communes in early revolutionary Russia quickly found their movement co-opted by the authoritarian Leninists who imposed authority from above while retaining the appearance and rhetoric of collective ownership. Lenin himself was a Taylor enthusiast, an ironic twist of history.
- OEW considered it to be a "Periodic contracting" mode, but one in which contracting was relatively unimportant because democratic decision-making would direct adjustments between work stations and workers.
- In terms of contractual hierarchy, OEW classifies it at the lower end of the spectrum. Other than a need to decide how new members could join the group and how unwanted members would be ejected, there is little need for contractual relations.
- In terms of decision-making hierarchy, the Peer Group rates near the top. An elected leader makes the decisions which everyone must abide by for the system to work. It is not the most hierarchical, however, because the workers do have the option of electing someone new. They can't continually do that, however, or it will devolve into a system where only popular decisions are made.
Efficiencies:
a. Product flow
1. Transportation expense - Everything is under one roof, relatively economical
2. Buffer inventories - The system is flexible enough that it is unnecessary to keep buffer inventories in theory
3. Interface leakage - Since workers are sharing the outcome, there is incentive to monitor, report, and control leakage in theory
b. Assignment attributes
4. Station assignments- Since decisions and leadership selections are made democratically, it is possible for manipulators, demagogues, and self-promoters to get what they want even if this is not the most efficient outcome. There is opportunity for log-rolling: you vote me to be the QA inspector and I will vote you to be the buyer. Neither of us is very good at our job, but we can get at least 2 votes that way.
5. Leadership - The comments above about voting, log-rolling, rotation, and popularity all hold for leadership selection efficiency.
6. Contracting - As mentioned above, there is little need for contracting, so this is an efficient organization for that characteristic
c. Incentive attributes
7. Work intensity- Since pay is by average productivity and not marginal productivity, there is little incentive to work harder. Another Tragedy of the Commons: my hard work will benefit my neighbor as much as me, but I will enjoy all of my own laxity. Slacking will be overproduced.
8. Equipment utilization- Workers will note the abuse of equipment and seek to minimize it because everyone suffers equally. Does this seem to contradict the previous point? I think not, since it is easier to prove that your neighbor is letting his equipment deteriorate than to prove he is not working as hard as he possibly can.
9. Local shock responsiveness- All workers share in the outcome equally, so when one station or worker is broken down, it is in their interest to solve the problem.
10. Local innovation- Again, everyone stands to benefit from innovations made, so workers will enthusiastically accept new ideas. Or will they? Some people will resist change for the sake of resisting it, and if they are good at arguing their point, they will prevail in a democratic organization. However, this works in the opposite direction, also.
11. System responsiveness- The group makes tactical decisions through an elected agent, so it should respond well to immediate problems, and it makes strategic decisions through consensus, so it should respond well to longer term problems, but it will not respond quickly. Japanese corporations are largely run this way, and they seem to adapt quite well.
Again, Quality Control is not explicitly addressed. It seems that this mode would be economical with respect to such practices as continuous improvement and team production which rely on consensus.
Bottom line: Williamson finds the Peer Group to be of mixed hierarchy (low in contractual, high in decision-making), and very efficient (scoring positive on 8 of 9 tests). In some ways, Deming management principles emphasize consensus-based decision-making, so many of the operations would be similar to what is already seen in Japanese and Lean manufacturing environments. However, there is still a concern that "the management" would become highly politicized and unwilling to face or confront hard problems.
organization theory "Oliver E. Williamson" "Transaction Cost Economics" book review "lean manufacturing" "lean production"
Labels: book, organization
<< Home