37 Comments Add your own

• 1. Nic Marlin  |  December 14th, 2007 at 10:08 am

  Principal-Agent relationship theory from economics suggests that people act in their own best interests. I have seen this at play in every organization I have worked for. For instance, I have witnessed sales people in the last company I worked for make near zero profit sales to bump up their sales numbers in order to get their bonuses. It is bad business for the company, but things like this happen all the time. The solution is to manage incentives appropriately so that goals are aligned. Perhaps if my former employer would have based bonuses on profit numbers instead of revenue this problem would not be occurring. The alternatives for controlling principal-agent conflicts involve reassigning decision rights, transferring information, or changing incentives. For organizations experiencing these kinds of problems, the approaches to controlling incentive conflicts are fixed payments and monitoring, incentive pay and no monitoring, or sharing contract and some monitoring. These are all basic economic principals and I have seen them work well when implemented properly.

• 2. Chris Carr  |  December 14th, 2007 at 3:57 pm

  Good. Right on. Jensen and Meckling and their research on the misalignment between the interests of the principal and agent.

• 3. robbin forsyth  |  October 28th, 2010 at 7:33 pm

  Back in 2001 I was working at a company that makes athletic apparel and related gear. One of my main responsibilities was the sourcing of all products we sold. One day my boss introduced me to a “good friend” that just happened to represent a type of supplier we needed to fill a capacity requirement. It seemed a little strange. The boss and I had previously talked about how his strengths were marketing and merchandising, not production. He gave me full authority for vendor selection and did not want to know details of how I made decisions. Anyway, the sales agent was knowledgeable about the product we needed and I was happy to have a lead land in my lap. The first season working together went acceptably, they were good, not great. As I was building the 2002 source plan my boss was atimate that his “good friend” receive more of our business for the next 12 months. This set off alarms in head. The clothing business is rife with backdoor deals that entails some sort of kickback scheme for sourcing. Previously I have had vendors hand me envelopes of cash at dinner meetings and offer me ongoing payment programs for placing orders with their companies, (all were refused). I suspected that my boss was getting a kickback from the sales agent. To make a long story short, through some investigative work I was able to prove that he was taking a percentage of all orders we placed with the agent.

  This type of action is greed, pure and simple. The lure of making money for minimal effort is always attractive. When you can utilize the economies of mass production to pay you for making an introduction and/or placing orders that would be filled anyway, the attraction becomes too much for a lot of people. In Org Behavior we have been learning about team dynamics. People that receive kickbacks are “Free Riders” that obtain benefits from an organization without bearing their share the costs needed to acquire the benefits. Kickbacks cost the buying company additional cost of goods. Any cost of goods paid by a supplier to produce your order will be included in your purchase price for the goods, (You may never figure it out exactly but it will be there).

  I was able to eliminate any new business going to the agent, (and not losing my job) by leveraging a more important variable than simple pricing. I focused on quality and eventually found another supplier that could supply better quality at the same price. All of our products carried a lifetime warrantee and because of this quality is king if all other variables are equal.

  The only way to eliminate this type of activity is to work openly but pessimistically with suppliers. I believe in open supplier relationships and I am loyal to companies that deliver as promised, but I don’t “trust” any suppliers.

  Money makes people do irrational things. An effective business leader needs to keep their eyes, ears and mind open to seeing changes in how people act and what supplier relationships become important to them. It sounds paranoid, but its necessary.

• 4. Chris Carr  |  October 29th, 2010 at 5:49 am

  Good real world add in, Robbin. This can be the dark underbelly of how things sometimes work in an emerging market, for sure. Sounds like you handled it well and had to navigate some very delicate and tricky waters.

  Your experience is also a good example of some of the agency costs/rents that other people or firms in supply chain can extort from others, and which you learn about in your economics coursework in particular.

• 5. Horizon Chaser  |  November 4th, 2010 at 9:56 am

  Interesting coincidence that we are currently studying game theory and “the prisoner’s dilemma” in our Managerial Economics class. How can the central government get local governments to act in the best interest of the nation when that behavior is not in the best interest of the province? In other words, how can the central government maintain “cooperation” amongst the provinces? Historically, Beijing has accomplished this by monitoring all and punishing the “cheaters” severely. Nothing like the threat of arrest, imprisonment, and torture without a trial to deter cheating. Figure out how to maintain cooperation without this threat and you could win yourself a Nobel Prize…

• 6. J Hurley  |  November 27th, 2010 at 7:21 pm

  In industry, I work as a project manager for an engineering firm. I am responsible for leading and directing 10 employees. In all my work experience I have seen or have been somehow involved in situation like this. As an example, about 4 months ago I had asked an software engineer to write come computer code that would run out companies hardware with particular and well explained functions. However, the code was written in a total different form than what we had agreed upon and did not fulfill the requirements. Long story short, it was later found out that the employer that had written the code in a way that would help him with his attempt to sell it to other companies in the industry.
  I always find it amazing how some people always work in their own self interest, and to the extent in which they do it is ridiculous.
  Unfortunatley, there was nothing we could do as a company, and the employee was released.

• 7. Cassie Bettencourt  |  December 16th, 2010 at 10:38 pm

  The first example that comes to mind relating to misaligned incentives in businesses has to do with departmental budgets. The number one priority for the company I worked for was customer service and good customer service meant better business for the company. However, each department creates a yearly budget and the management has a lot of pressure on them to adhere to their budget. I can think of more than one time where a client needed a last minute amenity and my department held back hoping that one of the other departments that the client was dealing with would step in and provide it. The attitude in the departments were “we don’t need that coming out of OUR budget” or “they can pay for it this time.” Now, in a company where prompt customer service is number one, this doesn’t seem to be an attitude aligned with the best interest of the company.

  This reminds me of the classic principal-agent theory that we recently studied in economics. The incentives of the principal (the company) and the agents (the departments) are not aligned correctly, thus causing the inefficiency. This dilemma happens so often in business because people act in their own self-interest more often than not. The structure is not set up in a way that a rational decision leads to the desired action.

  In an ideal world, this would be fixed by making sure everyone’s incentives are aligned all the time. From another angle, people tend to view the world in terms of “accounting profits” - straight costs and benefits. If more people looked at all of the relevant costs and benefits, both implicit and explicit, decision outcomes might be different. A business leader able to see the difference and implement ways of making the implicit costs more obvious to his employees would be on the right track to minimizing this conflict of interest within the same entity. As far as China is concerned, success in this would mean stepping closer the “dynamic balance” between their national and local priorities.

• 8. Jessie Wilkie  |  December 20th, 2010 at 3:41 pm

  The example that I have isn’t directly about me, but it’s about a company that I helped. I did a project for one of my classes where we worked with a very small, startup business that sold CDs with recipes. This business had a distribution model where they would drop their CDs off with Persian grocery stores and restaurants. The restaurant owners were supposed to return 70% of the profits of sold CDs and keep 30% themselves. However, the restaurant owners had no incentive to report sold CDs because it was hard for the cooking company to enforce and regulate these transactions. So it was in the best interest of the restaurant owners to keep 100% of the profits and not report it. In this example, the cooking company is the “principal” and the restaurants are the “agents” for the principal-agent theory which is defined as:

  “In political science and economics, the principal–agent problem or agency dilemma treats the difficulties that arise under conditions of incomplete and asymmetric information when a principal hires an agent, such as the problem of potential moral hazard and conflict of interest, inasmuch as the principal is—presumably—hiring the agent to pursue its, the principal’s, interests.”

  This happens over and over again because business’s are unable to regulate this problem due to lack of funding, resources, or knowledge.This problem can be reduced or eliminated if the organization is able to understand incentives and use them to make people do the best for the organization. Sometimes, it might be necessary to draw up a contract or a legal document, to get the job done.

  I’d say that a manager or a higher up in the business or organization has the best chance to curb this. Or perhaps, even an outside consultant with no vested interests within the organization itself.

  As for China’s provinces, I would say that the best people to fix the problem would be people outside the government who could see the whole picture between Beijing and the provinces. Where they could design incentive based schemes and legal binding contracts to get the areas to work well together.

• 9. Amanda Podesta  |  December 24th, 2010 at 7:03 am

  After reading the NYT piece, the economic theory in play that stood out to me was the dead-weight loss from monopoly pricing and the artificial scarcity to the energy that the government had created. The article does not quantify what the energy price hike was… or discuss whether it was reasonable or not. Bare in mind that the government was imposing a cost and not letting the market set the price. This typically creates inefficiencies in markets. Consequently back-door dealing such as those being reported should not be *so* surprising.

  I can’t think of when I purposefully circumvented a higher authority’s request but it reminded me of when the government wanted to better track the product history at food processing factories. They fitted out the DFA with a lab and technicians and then mandated that samples of product get regularly sent to be tested. The DFA and the government then sat back and waited for their customers to provide a means to establishing records on everyone (and some convenient revenue) with little effort. Unexpectedly, managers/owners started approaching independent laboratories to circumvent the higher costs and the adverse sentiment against the “Big Brother”-ness of the DFA. The government isn’t getting its data.

• 10. Tara Millard  |  December 27th, 2010 at 2:56 pm

  I have seen this very issue in a company I previously worked for. This company was based in the field of Construction which often faces Principal-agent issues due to the segmented nature of the industry. Project managers and crews are in the field while the administration departments remain in the office. Both field workers and office workers believe what they are doing is the most important thing. This company failed to encourage a team based approach. Admin workers would intentionally delay doing things for people in the field while project managers focused purely on the task at hand rather than the necessary supporting paperwork. Each segment believed their individual role was the only role crucial to keeping this company afloat, yet this attitude led to many financial and performance struggles.

  Emphasizing a team based approach in which administrative workers and project managers work interactively from the same location could eliminate this disconnect. Also, hiring a personable manager with leadership capabilities could lead to the entire company working as a well oiled machine, rather than separate parts that cannot possibly reach their potential whilst working independently.

  This principal – agent dilemma is extremely common in America where everyone has personal goals that supersede goals of the corporation. Incorporating personal goals with business goals and basing rewards on this would be an effective way to eliminate this selfish approach to business.

• 11. Jessica Shayler  |  January 2nd, 2011 at 12:53 pm

  I have a minor is psychology. One of the things I learned and that we touched on in Organizational Behavior is that people behave differently in large groups than they do alone or in small groups. This is where “bystander apathy” comes into play. There are many examples of a group of people who witness a crime (theft, rape, etc) and do nothing. My first instinct is rage when I hear of such things, but then I have to remember that these are not evil people. Neither am I, but we all have the capacity to do or not do terrible things. One of the most awful and enlightening experiences is to be powerless and find out what kind of person you are.

  A few years ago I was not the person I wanted to be. It was my first teaching job after credentialing and my students were rough. Most came from harsh family conditions and all were two years behind in math. The fist trimester went ok, but I always felt like I was fighting them. They had no qualms disregarding mandates because they knew I could not do anything to them that mattered. They were rational actors behaving in their own self interest and they had already decided that I was not part of it. I was powerless. The second trimester was agony. I was not the leader they needed then, but I learned a few things and had the chance to redeem myself in future teaching jobs.

  Five Lessons:
  1) Passion is infectious. Show it and it draws others in. People (not just students) are more willing to do what you ask when you show an interest in the subject yourself (whatever it may be).

  2) We are curious creatures. Addressing the “why” behind actions helps initiate and sustain buy-in from your followers.

  3) We are also creatures of habit. People like being able to predict what’s going to happen, so set up a structure that makes sense and shows fairness. It makes people more comfortable.

  4) Cash is King. No, I’m not suggesting traditional bribes (don’t you know those are illegal?), but appropriate incentives. Just think back to Managerial Economics and Human Resource Management.

  Mostly I’ve found that while guidelines like these are helpful, you have to figure out your own style and what works for you. This leads to my number one lesson, something I still really struggle with.

  5) Failure is success. I know this is reminiscent of Orwell’s “1984″ (War is Peace etc…), so let me be clear. Accepting failure and learning from it, making each iteration better than the last, that is success. Accepting is my weakness. But I’m working on it.

• 12. David Hart  |  January 3rd, 2011 at 7:49 pm

  The phenomenon of looking out for one’s own personal gain can be observed all over the place. One example that comes quickly to mind occured at my work last year. The director of the place where I worked gave a directive to eliminate the use of cell phones in the work place. It was against the rules to even bring in cell phones to the facility. We were instructed to leave them in the car. However, this directive did not go over well. Very few people followed it. In fact, most people continued to use their cell phones at work.

  The policy of banning cell phones was emphasized time and time again, but people were not willing to go along with it. Even many leaders did not follow the order. People did not agree with the policy, and simply ignored it. Although some people were more discreet about cell phone use, they realized the benefits outweighed the consequences.

  If a leader wants others to follow him or her, it is important for the leader to sell his or her vision. In the example of the cell phones, the leader simply issued a directive without really describing his reasoning behind it. Also, the consequences of not following this rule were not steep enough to change people’s behavior.

  These were insightful articles that really makes one ponder the future of China as well as the future of the world. Environmental issues seem to play an ever increasing role in the world’s economy. I can only imagine that if several countries come to an agreement about curbing pollution and conserving resources, who will enforce it?

  China is a big country, but the entire world is huge! It will take a massive effort of both local and national governements to make progress with these issues. In China, it will be interesting to see how local governments respond to continued pressure from Beijing to conform. They will do everything they can to promote their own self interest, as they have always done. Each local government does what is best for itself.

  As we have seen throughout the articles and comments in this post, it is human nature to try to get around certain rules and regulations. People will serve their own self interests. Thus if a leader wants people to conform, he or she will have to try convince others that they need to conform because it is in their own best interest.

• 13. Anthony Kallioinen  |  January 4th, 2011 at 7:03 pm

  The restaurant that I used to work at encountered this problem repeatedly with its serving staff. Although workers were required to perform routine duties while the manager was away, there were two shifts during the remainder of the day. The earlier workers would often shirk their duties in favor of more enjoyable tasks, leaving the rest to the second shift workers. Even with complaints to the manager, nothing really changed. They were uninterested in who did the chores as long as they got done.

  Although this is a very common and mundane example, there are larger examples throughout history showing this very same trend. The states/provinces/common folk are upset with the impositions of the governing body. This generally occurs because what the larger body wants is usually very difficult to achieve or contradictory to what the local body wants. If the government wants savings, it tells the local provinces to cut back…yet the government also wants growth. It seems that it is true that China is growing faster than Beijing is able to control.

  The principle we have learned recently that describes this is the ‘principal-agent relationship’ which shows the difference in goals of both parties. If the principal (governing body) wants the agent (local government) to act on its behalf it must offer the correct incentives to have this happen. Whether these incentives are rewards for good behavior of punishments for bad behavior is up the governing body. At this juncture it seems that Beijing is asking for contradictory things. They need rapid growth to continue the building boom that they are currently riding and the power to do so, but they need to cut back on their power consumption as well.

  This trend will continue to happen until sufficient steps are taken to combat it. Incentives must be aligned throughout all parties of the department/company/country before cooperation will happen. The manager/person/business leader that is in the best position to solve this is one of those at the top; those in management positions that are able to follow through with their incentives, whether that is allocating resources to encouraging the troops or taking measuring to terminate the troublemakers who refuse.

• 14. Brady Haug  |  January 5th, 2011 at 8:47 pm

  When I was working for a medical manufacturing company two years ago, I was assigned an extremely tedious research project. The goal of the project was to institute a material change in components that were used in roughly 20 different medical products. Aside from redesigning the parts and overseeing the production of the prototypes, I also had to perform countless hours of testing for each product. At the time I was working as an intern for the company. The project had been submitted to the engineering department months prior to my start date. My supervisor had intentionally delayed the project start date because none of his coworkers would take on the task. Despite the request for the project to be completed, my supervisor and the other members of the engineering department ignored the request until an intern was available to take on the project. The underlying reason for the delay was that the project manager would not receive the high accolades that other projects would result in, and the project would require tedious, boring, and time consuming work. It benefited my supervisor to delay the project until someone else would take on the work.

  As many of my classmates have previously mentioned, the principle-agent theory explains how this phenomenon occurs. Within companies, departments, and even working teams, this theory can play out. The different members of these groups can have misaligned incentives with those of their superiors. In my example, the company was served best by quickly completing the project and my supervisor was best served by waiting until the project was picked up by another employee.

  In order to stop this kind of scenario from happening, it is crucial to make sure that an individual’s incentives are aligned with the goals that are needed to be accomplished. Misaligned incentives and poor dissemination of information can both encourage this behavior. For example, if the importance of the project was explained in greater depth, my supervisor may have felt more of an urge to begin the project. Upper management must be responsible for ensuring the alignment of incentives. The issue can only be corrected through top-down method.

• 15. Katie Moeller  |  January 8th, 2011 at 5:15 pm

  An example that comes to mind is when I worked at Best Buy on merchandising projects. Many of our stores have different merchandising projects – this means different products, fixtures, signs, and legality requirements. We were not diligent about capturing what stores had what. This meant we wasted a lot of time and money with sending wrong things to the stores. I was tasked with trying to figure out what stores had what because it was pertinent to the next project I was managing. Well, that would entail calling all of our stores, upwards of 1000. That was not going to happen. I was able to work with people who would make routine visits to our stores to capture all of the information for me. I don’t think this example exactly correlates to a business theory - potentially just being smart, efficient, or lazy. Either way, it was not something I wanted to do but I found an efficient way to get it done. Sometimes when you’re tasked with something, you have to find creative and out-of-the-box ideas on how to accomplish it. In the end, I met my deliverable and helped the company save money.

  Ways to curb this mentality (I’ll address being lazy), is to have weekly meetings with your direct reports to make sure they are getting the tasks done and done according to your direction. The problem with this is being perceived as a micro-manager but it depends on how important it is for the company. A company that will have the best opportunity to curb this issue would be smaller companies. There will be fewer employees and people will have a better line of sight to what each person is working on. Working at Best Buy, my manager never knew what I was doing because there were so many other things and people to worry about. (Or I like to think I just excelled in my job and he didn’t have to worry about me.) But, having control or knowing what each of your employees does gets harder when the company grows. This is something that a business owner will have to reflect on when deciding business growth.

• 16. Tim Easton  |  January 9th, 2011 at 11:28 am

  I encountered this problem multiple times while working as a project manager at a hospital in Arizona. My department was in charge of managing new construction and renovations that took place in the hospital. The projects had to be billed to the department where the construction took place, and each department had a cost center that was intended to pay for these projects. The problem was that if a project spanned multiple departments, the departments would try to pass the cost off to one another. It became a tedious task to determine the appropriate division of the cost for each department.

  As other bloggers have said, this in known as the principle-agent dilemma that we learned about in economics. This happens when the individual has different goals than the entire company, and they act in a way that benefits them self. In my example, the project managers represent the entire hospital and the departments represent the individual. The departments are acting selfishly because they do not want their budgets to be spent on projects that benefit other departments. They would rather keep more of their budget to spend on other things that they might need, like new equipment. The hospital wanted the project to help both departments, but neither department was willing to pay for it.

  To stop the principle-agent dilemma the goals of the organization and the individual need to be aligned. At the hospital the project managers need to show the department managers that these new construction projects, and renovations, will benefit their department and are worth their cost. Finally, a team based attitude needs to be adopted by everyone in order to accomplish the goals of the company.

• 17. Randy Camat  |  January 13th, 2011 at 7:17 pm

  Like Tara, I too, have worked in the construction industry and have seen the principle-agent problem in action. In general, safety is a big issue on construction sites. Companies spend a large amount of money training and testing for safety awareness. A simple rule around the job site is making sure you have on the proper safety gear – hard hat, safety glasses, gloves, and vest – however, this rules has been violated many times. On one of my safety-walks with the Safety Manager, there were about a couple of safety violations in each building (on a site consisting of nine). I believe workers are so lax with this rule or simply ignore it for they personal benefit – feeling more comfortable – is due to a lack of supervision and a lack of consequences. The only person on the job site that the workers actually listened to was the Safety Manager. That’s one person to supervise 100+ workers spread throughout a very large amount of land.

  If possible, increasing the amount of supervision (more Safety Managers) can decrease the violations. However, that can prove very costly as staying under budget (and on schedule) is the main concern in construction. Another solution could be to increase the severity of the consequences. I am not aware of the procedure for those that violate the safety rules – I would assume an initial write up for the first incident followed by a report to the worker’s supervisor on repeated violations. In order to make consequences more credible, I would have the worker get sent home for the first violation. Clearly, the consequences outweigh the benefits (full day’s pay vs comfort) therefore the worker would have little incentive to break the rules. I am sure this is not the best solution, but it would definitely eliminate the problem. The best people to help eliminate this problem are the workers themselves. It will be up to their judgment to gamble a day’s pay.

• 18. Kristine Spencer  |  January 15th, 2011 at 11:28 pm

  I think it is relatively normal to try to avoid some things that one does not want to do. Just a couple of weeks ago, I purposely avoided going to dinner with my boyfriend’s grandparents, who are the elderly and seen as higher up in the family organization. I did this for my own selfish reasons because I would rather do other things with my time than spend time alone with grandparents that aren’t mine. The principal agent problem fits China’s problems with their provinces. This problem can be fixed when the incentives of the agent are aligned with the goals of the principal. For example in my case, a proper incentive for me to spend time with my boyfriend’s grandparents would be to spend time with my boyfriend as well. Since my boyfriend was not going to be there, I was not incentivized to go. In regards to China’s provinces, the local officials may also engage in the prisoner’s dilemma and feel as though their actions do not matter enough to make a difference. Because there are so many people in China, the officials could feel like there are other officials breaking the rules too. Therefore it is less risky for the official to gain the extra income and business to the region by being less environmentally friendly than to comply with environmental standards. Once again, incentives are not aligned for the officials to benefit enough in order for them to comply. People are generally selfish and will act in their own self interest, which is why this happens over and over again. I believe that proper incentives and transformational leadership can curb this. Someone who inspires and leads his team from the top down, with support from the bottom up, with a vision has the best chance at changing an organization.

  Unfortunately, this blog is not about me and my boyfriend’s grandparents, but is about how China will effectively deal with environmental issues if its provinces down right defy the laws coming from Beijing. This reminds me of the issues proposed in Postcards from Tomorrow Square; although China is a superpower, they are indeed fragile, and their lack of control over provinces is but one example of this fragile power. Beijing is beginning to flex their power, according to the NY Times article, by singling out local officials who fail to comply with energy laws. The real test of Beijing’s power and dedication to energy savings will be whether there will be any consequences for officials who fail to comply with energy laws. It will be interesting to see whether the structure of China’s government will change in order to have more power over the provinces that fail to comply. The government might also incentivize officials to follow the laws, or inspire and teach them about the importance of the environment.

• 19. Ashley Ogden  |  January 17th, 2011 at 6:16 pm

  It is hard to get along when you are trying to follow two sets of rules, for example the US government versus the states.
  The figure that said that one fifth of all energy plants in China are illegal is totally absurd. How are they going to fix their environmental problems when there are huge, illegal plants operating in broad daylight? It seems to me that the majority of the population is not aware of the vast importance of addressing their environmental and energy problems. They are looking for a profit, no matter what, even if they have to go around the law. For a nationwide campaign to work there needs to be buy-in from the provinces or else they will not cooperate.
  A good example of this is the “Study 25-30 hours every week”, or two hours for each unit of credit, that Cal Poly has tried to impose over the last few years. That means that track one MBA students are supposed to study 32 hours per week (not including our China preparations). The MBA students defiantly get closer to this goal than the undergrads do, but I think it is only for the benefit of our own good, not because the professor told us to do it. Cal Poly adopted this concept on a campus-wide level and it is sometimes preached my professors, but not always. It is hard for this to work if the students don’t feel that it is ultimately beneficial for them to do so. A goal that is more reasonable is for a student is to set their own goals (e.g. Dean’s List or Magna Cum Laude) and then take the necessary steps to reach that goal. Grades are kind of like money, you want to be profitable so you will try your hardest to do so, but you may not follow the guidelines if they are not profitable for you. Students that don’t care about their grades (D for done) are not going to follow the 25-30 rule.
  What I am trying to say is that the students or the provinces need to see the personal benefit (or profit) in a rule or regulation if they are going to buy-into and follow it. Maybe the provinces should have more say in the rules that get applied to them.

• 20. Will Moeller  |  January 20th, 2011 at 6:06 pm

  This idea of telling someone seems to occur universally when the threat of punishment is not as bad as undertaking what’s being asked.

  In 2006, I started a job with a consulting company. Consulting teams were comprised of three people: an analyst, an associate, and a senior consultant. The associate was supposed to be the liaison between the client, the senior consultant and the analyst. In this situation, I was the analyst and this nefarious character (Andy) was the associate.

  Andy became notorious for simply taking no responsibility toward meeting client demands. Say, for example, the client demanded four tasks from our firm in the next three months. Andy would take no initiative to set the goals and pave the road for the analyst to complete this work, as was his role. Thus deadlines came and went making the company look foolish when no work was done on our part. When it came time to take ownership of failure, Andy took no responsibility, instead he blamed it one either the consultant for not communicating the goals clearly or the analyst for simply not doing work. Thus, Andy spent most of his time reading espn.com, since he was not working during the day,

  The theory behind this, as studied in Organization Behavior, is social loafing. It is the idea that if a group sets out to accomplish a task, any individual can make a personal gain by doing less work. The difference is made up by the rest of the group.

  Rather than deal with Andy as the problem head on, it was easier for the company to shift blame to underlings. Thus, when tasks were assigned, Andy knew that even if nothing got done, he had nothing to worry about. The analysts would get the blame for the team’s failure. Conversely, the analysts who got smart would pick up all the extra slack.

  In the end, taking no responsibility was Andy’s best option. He enjoyed all the joys of free riding and the organization hummed along. Thus the best type of business leader in this particular situation, and many situations for that matter, is the one who can see through the act. The best business leader is the one who has a pulse on the issues that impede the organization the most and is not afraid to deal with them head on.

• 21. Jason Jay Sharma  |  January 22nd, 2011 at 4:04 am

  As a former tax accountant, I’ve seen my fair share of individuals who are focused on their own self-interest when it comes to money and business. You can’t really blame a person for taking actions that will deliver them the most benefit–it’s only human nature to do so.

  While I’ve never done anything that would put me in a compromising situation as an accountant, it never stopped clients from asking for favors regarding their IRS filings. I would say that laws and rules help prevent clients and other accountants from taking actions in their own favor that may be disallowed, Arthur Andersen proves otherwise. Many times the actions of the individual accounts play out against the wishes of the overall firm, which usually leads to trouble.

  As repeatedly mentioned before me, the principal-agent theory we studied in Managerial Economics has the most direct relation to these issues. Unfortunately, I don’t believe aligning incentives will always work when it comes to financial or business situations. In most cases, such incentives can be topped in favor of the misbehavior when individuals disregard rules and are selfish.

  The actions of the local officials in the New York Times article do not surprise me. In a country where corruption is still prevalent, it only seems natural. At this time, I think the suggestions offered in the conclusion of the article would be worth trying–including rating the local officials or introducing financials penalties or incentives. While some are saying it might useful to explain the environmental impacts to the local governments, in a growing nation that needs as much resources as possible, I doubt the outcome will be great as hoped. I do think for China the best solution is time–as it modernizes, a better system will grow from their development.

• 22. Sarah Weinzapfel  |  January 24th, 2011 at 4:19 pm

  Like my classmates have already said, we learned about the principal-agent problem in economics. There are tons of cases just like it here in the U.S. with national law and state laws. Everyone has their own self-interests in mind. You see it almost every employer/employee relationship and in everyday life. You see it all the time with kids. Not just little kids either. I know that when my mom asks me to do some painting for her and she’s not going to pay me, I have an excuse like school work, and there’s really no leverage she has with a 22 year old, I have no incentive to do it.

  In Postcards from Tomorrow it talked about the laws coming out of Beijing and the lack of laws in provinces far from it. A lot of the time when policies in China were being talked about, he just said Beijing as if it were the only part of the country where laws mattered. China is becoming a super power, but these are things that make it so fragile. It’s not even like energy companies are cutting little corners. Twenty percent of energy companies are flat out illegal. China also uses half of the world’s concrete. With stats like that, it’s hard to imagine they are actually worried with environmental issues and are doing anything to change the current condition. If China’s provinces aren’t being regulated what’s their incentive? Not China’s but the individual companies’. It’s hard to read articles like this and books like Postcards from Tomorrow that talk about how China is trying to overcome their environmental and energy issues and then read statistics like 50% of the world’s concrete and 1/3 of coal.

  This article gives a lot unsettling statistics and facts like three power plants were built without permission and the government found 14 provinces that didn’t comply with regulations, but it doesn’t say too much about what is being done to these companies. The government asked the provinces to make of list of their most wasteful industries and that’s about it. Why would they want to do that? They wouldn’t. There’s nothing in it for them. Of course they came up with some way of cutting corners. They are scared. It costs money and if no one is regulating them or giving them an incentive to comply, nothing will change.

• 23. Chris Fung  |  February 2nd, 2011 at 3:48 pm

  The theory from economics (many of my classmates have touched upon) is the principal - agent theory. It’s the problem where you have someone else (the agent) do something that interest you (or the principal stakeholder), however, nothing that you mandate gets done due to the fact the person has other interests. This is true in many things in life as people are interested in their self interest.

  While I can’t think of an example where I have circumvented a request from above, I do remember a project from my internship that the workers didn’t necessarily respond well to. It involved a project at a winery that measured bottling line efficiencies of glass bottles moving down the line to the filling machine. We wanted to know how many glass bottles fell down or broke through the conveyer system when the line was at full speed to see if the line warranted an upgrade in machinery . I had workers assigned as data collectors to chart these incidences and explained their duties to collect the necessary information. Cutting to the chase, the initial data collecting did not match up with the consultant group data. We attributed this to the principal-agent problem. I probably figured the data figures were low because the workers were concerned that measuring line efficiency was charting how well they worked and that it would be used to judge their performance appraisals. In a sense, it was a disincentive for them to properly do this for the company. To overcome this problem, on following trials, I had to explain to them that it was about measuring the equipment efficiency, and that the goal was to save the company money and to make their jobs easier and less stressful when machines go down for down/broken bottles. Once they understood that there was potential to help them with their job duties (their interest) data collecting became much better (and surprisingly more detailed and helpful). I learned you got to get buy-in from people if you ever want to get something done.

  Problems like this happen over and over again in industry because, as some of my classmates have explained, there needs to be an incentive for the people to make the change - “What’s in it for us?” To help curb the problem, the principal needs to give the right incentives and rewards to the agent and making it a win-win situation. While it might not work out 100% of the time, it certainly might help. In the China power plant/industry example from the articles, what were the incentives for the provinces to report to Beijing the correct information? It would probably harm the provinces if they did as they were told since it would lower their productivity. However, if the government offered incentives to help the welfare of the people in the provinces that reduced their electrical or environmental impact of industries, then perhaps they might comply. I believe a leader who is empathetic to the needs of the minority and can find common interest of all parties involved, they might be able to create policies that are actually effective. This is by no means easy and is an issue that we in America struggle to deal with too.

• 24. Matt Streiter  |  February 2nd, 2011 at 6:48 pm

  Although this new policy didn’t directly effect me, it did receive a lot of resistance from other people in the company who were told to implement it. When working at Wells Fargo tellers and bankers would get “incentive credit” for selling online banking to customers. The customer didn’t even have to use it regularly but did need to physically sign up for it for the sales person to get credit for it. In this time period the Haiti earthquake occurred. Wells Fargo instructed tellers and bankers to leverage the disaster to get customers to sign up for online banking by donating to relief organization via online banking. Although donating online was an efficient way to donate, the instruction to exploit the unfortunate circumstances did not sit well with many employees.

  Many of the tellers and bankers who work off of partial commission felt using the tragedy to increase sales was immoral and that it was unethical on the managements part to instruct them to do so. When I heard about this occurring I turned to the news and saw banks such as Bank of America and Chase donating a million dollars to the cause while Wells Fargo donated just $100k. When talking to people I know in the branches they felt immoral following managements instruction especially after hearing the company donating a fractional amount themselves compared to other banks.

  Events like this can happen because incentives don’t typically align. In this case the sales persons morals did not align with the companies. Creating a plan to resolve this disconnect could be difficult since it is not a purely monetary issue. Perhaps Wells Fargo could match the donation amount of the customers if they wanted to ease the ill feelings held by the sale people. This situation definitely presents a principal-agent problem, and furthermore an ethical issue.

• 25. Tyler Sereno  |  February 7th, 2011 at 5:16 pm

  I worked as a student intern working with a team on a project for an unmanned underwater vehicle. My task was to examine the Toyota Prius motor as a candidate motor for the vehicle. As a student intern, I was instructed directly by my superior to consult one of the engineers when taking apart the motor to further examine and analyze it. I am good with my hands and I know how to use tools, and I knew it would take much longer to wait for one of the enineers to become available to help me. So, each day I worked on the motor alone. My incentives were not aligned with those of my superior. His incentives were to make sure the task was done correctly, and mine were to complete the task in a shorter amount of time.

  We examined this problem in our managerial economics class when we discussed the theory of the principal-agent problem. This theory states that the incentives of the individual employee do not match those of his boss or the company. There are ways to solve the principal-agent problem.

  In my example, the principal-agent problem could have been solved if my superior had checked in with more often. I rarely saw him, and he assigned me a challenging task. If he would have set up a schedule for me to work with one of the engineers on the motor, then there wouldn’t have been any problems. Our incentives would then be aligned and there would be no principal-agent problem.

• 26. Kyle R.  |  February 13th, 2011 at 9:12 pm

  Like many have said before, this is a perfect example of the principal-agent theory from economics. This describes how people or companies will usually act in their own self interests. This can pose a problem when the incentives of multiple parties vary in relation to a particular issue. From what I have read, it seems that China has different interests in their energy production/consumption than other countries. China also doesn’t place the same value on energy efficiency and pollution that the United States does. The more restrictions that are placed on energy production and usage only increases the costs to deliver to the consumer. However, by placing these restrictions, the country and world will notice a huge environmental benefit.

  I have experienced the principal-agent theory first-hand many times in the last few years. I’ve worked as a construction manager, engineer, and/or inspector for many different projects. These jobs vary from small plant upgrades to major defense projects with many companies involved. All contractors involved are to abide by the specification outlined by the engineer. On many occasions I have seen it where contractors have tried to skip required steps or use cheaper materials in order to improve the profitability of their company. The contractor might also be skipping steps just out of pure laziness, but the consequences of doing this can be detrimental to everyone involved.

  From my experience, the only solution that has worked is to employ a strict construction manager or inspector when this problem is encountered. It has also proved helpful when there are costly consequences for a company who is trying to undercut the owner’s contract. I have been the construction manger that has had to watch the every move of a particular contractor before. This was not enjoyable and feels like babysitting dishonest adults. This is just one of many examples I have where contractors cut corners because their interest don’t match those of the inspector and owner.

• 27. Chris Bruns  |  February 19th, 2011 at 7:06 pm

  I have worked in outside sales and account management, where I received a standard salary, however I could make several times that with commission on sales. There were always managers that would increase the amount of administrative duties to try and make sure information was gathered for other departments and salesmen activities could be tracked and monitored. The issue was that all salesmen knew that even though these administrative duties may help the company as a whole, we didn’t get paid for them and they take away from time spent in front of a client making a sale that went directly into our pockets. It is similar to the tragedy of the commons in that everyone tends to look out for number one, even though the combined effort of everyone results in a higher level of success then by themselves. This happens because people are self-serving by nature. What business can do to curb this is to offer incentives that outweigh the individual ones so that people want to work as a team and succeed as a unit. It takes a realistic leader to understand and accept how people truly are by nature.

  Some of the things I got from this post and the reading was I really didn’t understand how competitive the provinces were. In the Silicon Hutong post it is described them as ‘“corporate federalism.” Each province and locality operates as an economic entity, and the political relationships among them and between the localities and the center are driven by the economic (i.e. commercial) interests.’ I think this really sheds light on what it is like in China and helps the reader understand. Additionally I like the section of the NY Times article that mentions how Mr. Di produces a small number of recycled bricks and used this production to suspend a price increase. I believe we will start to see more and more business in China adopting a greener view not to help the environment, but to avoid costly increases.

• 28. Ben Raymond  |  February 21st, 2011 at 4:07 pm

  My experiences in organized sports immediately come to mind when I think about people shirking orders from the top. I don’t know how many times I’ve seen a coach give directions and then the second he turns his back the players begin to cut corners. While they are doing less work this way and it may have a short-term benefit, it is ultimately not increasing their endurance and benefiting them in the long run. This is the same concept I see with the Beijing provinces. In the short-term their factories may be producing more at a lower cost but they are exhausting the natural resources of China and creating massive amounts of waste and pollution, which in the long run could be very damaging.

  This phenomenon can be explained by the Principal-Agent relationship theory from economics. This theory suggests that people act in their own best interests, so if the interests of a relationship are not properly aligned, the desired result will not be reached. This continues to happen over and over again in business organizations because the desired result is usually that of the principal, not the agent, and the agent is looking out for his/her best interests. In order to eliminate or curb this issue the interests of the principal and agent must be aligned so that what benefits the principal also benefits the agent. In order to accomplish this, it takes a well-respected business leader that understands the agents and can effectively communicate with them.

• 29. JP Salazar  |  February 26th, 2011 at 6:34 pm

  This article got me thinking about my time working as a waiter here in downtown San Luis Obispo. In the waiting industry, there is usually a basic disconnect between the expectations of management and owners and the motivations of their employees. Management is concerned with their bottom line and the overall success of the restaurant. This means controlling how waiters act both with their customers and when they are not busy on the floor. Waiters, on the other hand, are motivated solely by the amount of money that they can take home with them. This means that waiters tend to spend as much time as possible with the customers that they feel they can extract the most value from. They also use techniques and mannerisms that are frowned upon by management. In my personal experience, the managers at my restaurant insisted that we do not intruduce ourselves by name and to remain as formal as we possibly could. However, the restaurant was managed in a very loose manner and employees were given more leeway than I had been used to in the past. Because of this, waiters will routinely act more freindly and personal with their customers in an effort to make more money for themselves. Another example of this has to do with how many waiters treat people from other countries. There is a stereotype amongst waiters that foreigners are lousy tippers. Becasue of this, it has become common for waiters to charge a gratuity on foreign tables even though it is against company policy. Motivated by thier own interest, the waiters choose to deliberately act against the will of thier supperiors.

  This goes back to the concept that we studied in economics, that people will always act in thier own self interests, esspecially when concerning money. Becasue the employees are only concerned with their own financial well being, they make choices that sometimes interfere with the direction that is placed before them by management. To curb this behovior, management needs to take a more proactive and controlling stance with their employees. They need to be more involoved in overseeing exactly what each employee is doing at all times. The problem with this is two fold. First, it costs more time and energy for management to be more involved in oversight. To curb specific problems, management first needs to gather all of those involved and make a statement reguarding the chage in policy. Then, management needs to follow through to make sure that thier directives are being followed by each employee. The second problem is that by increasing the oversight and involvemnt of management in employee actions severly limits the freedom of the employees. Part of the draw, what made the restaurant I worked at such a great place to work, was the amount of freedom we were given while working there. If management had decided to increase its involvement in order to enforce their ideas the restaurant would not have been as great of a place to work at. If this was the approach that management took then the restaurant would have risked losing some of its employees who did not agree with management’s demands. Part of what made the restaurnat so great and popular was the service. If management chose to limit the freedom of its employees then it would risk losing one of its biggest draws. Management, and those in charge, are often forced to walk this thin line. An organization’s greatest strength is the will and drive of the people who work there. Managers have to constantly balance allowing employees to follow their intuition and drive and enforcing the rules and direction that company wishes to follow.

• 30. J Vail  |  March 14th, 2011 at 12:57 pm

  From my own experience, this situation reminded me of my job selling ad space a few summers ago. We had a week long training program where all of the procedures were beaten into our heads, and one of the main tenets was to always “push for the big sale”. What this entailed was basically selling only our biggest package (which went for around $2000) and then only moving down into other options with a direct refusal, at which point the customer would already be tired of the student who cold-called their business as he scrambled to mention the other advertisements available. The divisional manager went as far as to tell us to leave the business to give them ‘time to think about it’ and then come back later. I realized within 3 weeks that this was never going to work, and was a waste of my time as well as the business owners. After we got well behind in our sales figures I decided to throw this plan out the window and just stick to selling the smallest package (a coupon as opposed to a full-color ad, which cost $400). We sold $9200 in the first day, and quickly rose amongst the other divisions, making it as high as #7 in the nation out of 70+ teams.

  I felt that I had the same logic as the local Chinese governments; I actually live here, so I know what works better than a regional ruling power. I also felt reading the articles that the implicit association is that if you are doing well fiscally, people have less of a tendency to ask what the underlying causes are as opposed to when you are failing. I feel that the problem in China is too large for one nation to solve – the central government needs to make rules and guidelines that are actually enforced, with penalties, but they need to be realistic enough for companies to achieve them without going bankrupt. Since the global environment is a global concern, I think that it falls upon the United States as well as other advanced economies to lend assistance and solutions with energy concerns rather than leave the Chinese to be stuck between a rock and a hard place.

• 31. Omar Pradhan  |  March 18th, 2011 at 12:38 pm

  Agency principles seem to apply. Legally speaking, an agency relationship is said to exist between two parties when one party Assents to act for / under the Benefit / Control of another (the A,B,C’s of agency…). Borrowing from David Wolf’s notion of “corporate federalism,” the provinces can be seen as bound, through social contract (entered into by their ancestors?), to act, vis-à-vis the controls of their central government, to benefit the nation. However, given the vastness of China, controlling disparate internal actors is an ever-present challenge. Economic (Friedman) and Social (Glasser) Rational Choice Theory seem to also apply / offer insights. Under Economic Rational Choice Theory, “individuals act as if balancing costs against benefits to arrive at action that maximizes personal advantage.” Choice theory, as seen through a social/psychological lens, informs that “the only person whose behavior we can control is our own…all we can give another is information.” All three perspectives hint at control, either externally coerced or informationally self-animated. In the article referenced, control of the provinces (energy use, pollution, etc.) by the central government remains an issue of increasing importance. Success may be realized to the extent that the central government can extend coercive compliance monitors into the provinces to validate compliance or, at (arguably) lesser economic / social / political cost, to share persuasive information with provincial actors, which triggers compliance. In my former career as a military pilot, the government dealt with the agency issue (how to effectuate / assure compliance) in a number of ways. First, there was the “black box” in the tail of the aircraft that always incriminated the would-be hot-dogging pilot. Then there was the air traffic control radar picture that could be used to demonstrate certain degrees of non-compliance. But probably most effective was our training. Several times a year, all pilots are required to test their limits and the effects of non-compliance during simulator missions. To the extent that procedures / rules were not followed, we learned that the actual limits of the aircraft were not far beyond our “regulated” limits. Given our desire to maximize benefits / minimize costs associated with our “exhilarating” line of work, the simulator served as a powerful informational tool to recognize, for ourselves (Glasser – Choice Theory) that the rules “aught” to be followed. Thus, an enduring solution to the age old Agency problem seems revealed: persuasive information coupled to a “trust-but-verify” black-box / Air Traffic Control radar picture. Returning to the issue as raised in China, perhaps pollution / climate change computer simulations coupled to fines, media shame, etc., would serve to encourage provincial actor alignment with central government mandates.

• 32. Grant  |  October 11th, 2011 at 9:15 am

  I had heard of the real estate bubble in China, but didn’t realize the degree to which it existed. It is as though China saw Keynesian economics thrive in the west and did what it does with many products it copies, and simply mandated its creation. China seemed to follow the “Field of Dreams” philosophy. “If you build it, they will come.” But they didn’t come. Waging the dog doesn’t work. Capitalism doesn’t start with supply to create a demand. It first recognizes a demand and meets that demand with a supply.

  There are two quotes that stood out. First, the analyst said, ” It’s not the quantity of GDP that matters, it’s the quality of GDP that matters.” That’s right. If the product is truly in demand, then the GDP is productive, however, in this case, the product is not in demand, so the Gross Domestic Product is an illusion. GDP includes the term product, which implies productive. There is nothing productive, in the long run, about meeting a demand that doesn’t exist.

  The second quote was made by the gentleman who said, “Prices are too high, we need the government to intervene.” I’m afraid that sentiment is shared by people around the world. the truth is that we are in a mess because the Government has intervened too much already. They say that capitalism is failing, when it is not capitalism that is failing, because what we have is not capitalism to begin with. If it was capitalism, they never would have built products to begin with. The population is deceived when they think that it is capitalism that made the system fail, when, in truth, it is a fundamental problem with our economic philosophy. The gentleman who made the statement, along with every citizen who thinks the government needs to help us, fails to realize that the problem began with too much government trying to game the system. So the solution can not be for the government to continue gaming the system by intervening as the man said.

  So I am left with the thought that the Chinese who share the man’s opinion are not all that different than the average American who expects the government to “intervene”. Granted, I assume that in the same way as in America, there are people who vary in terms of their philosophy. But for those who share that sentiment, they will be ultimately disappointed since the government cannot create wealth, all they can do is set an environment for wealth to change hands. It is up to the individual, whether they are Chinese, American, European, African, or otherwise, to see through the noise and seize the opportunity before them. We are living in exciting times and never before in the history of the world have such opportunities existed. There will be a great change of wealth in the next 50 years. The question for each of us is, is it going to flow to us or away from us.

• 33. Kevin K.  |  December 19th, 2011 at 1:54 pm

  When I was co-head of the sports department at a newspaper I would often circumvent the wishes of the “News” department in order to make the sports department look better. This could be through the layout of the paper, photos or stories used, or just the ways we tackled stories. It was selfish at times, but I felt it was better for our section, which was what mattered to me the most.

  Like many of the posts before mine that have correctly labelled this as the principal-agent relationship theory, I was more concerned with my direct work, rather than the overall goal of the newspaper. In other words, the sports department was my home and one that I looked to improve upon, while I found the News portion to be overbearing and uncaring about our section — which we were very dedicated to.

  This continues to happen over time, as seen in China and in nearly every office ever because people care about what they can see, touch, and feel, and rarely do they see the overarching plans that unite them all. With this view people can see how their actions directly influence themselves and their own situation — and obviously how they benefit from said actions. The best way to curb this is by having a strong leadership that can influence others — perhaps through charisma — into believing in the good of the whole. If people, and I understand a billion is a lot of people, can really be united, their combined efforts will equal more than the sum of their parts. Some uniting, motivating driver seems to be the best way to positively effect this tendency. This is pretty difficult to achieve — perhaps unless you were in a cult — but nations and organizations have rallied around causes and leaders before. It just takes some convincing I guess.

• 34. Vladimir  |  December 19th, 2011 at 3:54 pm

  When I worked for a company that had 25 employees, the CEO was involved in micromanaging the entry-level employees, who were three reporting levels below him. He wanted us to use specific Excel functions, to follow strict printing procedures, to label our files a certain way, and so on. “If you don’t do it my way”, he would say, “you may think you’re getting the job done, but you open yourselves to problems downstream.” Sometimes, breaking his rules made our jobs easier, faster, or possible. As employees, our motivation was getting paid and developing our skills. While we were also motivated by contributing to the company, (It was a family owned business where non-relatives felt like outsiders.), this motivator wasn’t as great. We were even less motivated to follow the CEO’s procedures. It was a conflict of interests. There was a time when we couldn’t get a printout to look a certain way. Since the saved file didn’t matter, only the printout did, we were able to solve the problem by running the sheet of paper through the printer twice. The CEO said not to do this, but it got the job done without any problems downstream. Another time, I overheard heard two employees talking about how to bypass the CEO’s procedures to complete an assignment which would have taken more time if they had followed the procedures. If the CEO worked with us to ensure we were capable of making good judgments while giving us more freedom in completing our assignments, we would have been more likely to follow his procedures while accomplishing our tasks more efficiently. This would have served everyone’s interests. If, on the other hand, he raised the penalties for not following his rules perfectly (e.g. “If I ever find out you did something I told you not to do, however insignificant, you will lose 50% of your bonus.”) there would have been less rule breaking but also less productivity and employee satisfaction.

  It looks like the Chinese government is not being realistic in balancing GDP growth and demand. From an American perspective, it’s ridiculous to keep building apartments when 75% of the units remain unoccupied and are predicted to stay that way. I can’t see this happening in America. Nor can I see a US mall staying open for years when most of its space is unoccupied and it gets very few customers. Does the Chinese government really see these newly built cities operating near capacity or does it have an ulterior motive for mismatching supply with demand? Quality of GDP growth is what needs to be incentivized, not quantity, at any cost, of GDP growth.

• 35. Daniel Fleek  |  January 13th, 2012 at 9:41 am

  When I was first starting out as a cook, I would always be told to do all the work no one else wanted to do like cutting onions, spicy peppers, and restocking mayonnaise. However, after awhile a new cook was hired. The next time I was asked to cut onions, I told the new cook that he should do it to get experience doing it. Obviously this was not my true intention. I just hated how much cutting onions made my eyes burn so when I was told to do the job, I just figured the new cook should do it like I had to when I was new.
  This phenomenon happened because I felt entitled since I had more experience than the new cook. Therefore, I felt like it was ok to tell him to do the work even though we were technically on the same level in the corporation. I felt like I had to do it when I was new so now you have to do it since you’re new. In many of my jobs, I have noticed this from the more experienced workers including myself. Personally, if there was a job that I did not like, the first thing I would do when training a new cook was to train him in the job I didn’t like so that they would be stuck doing that job instead of me. I believe this happens a lot in business organizations because as people gain experience, they feel entitled over people with less experience.
  To eliminate or curb this practice, I believe there has to be strong leadership in a company. By strong leadership I mean people in upper management who are hard workers. A good leader should know when he can do a job and when he should ask others to do it without coming off as being lazy. That way, people under his authority will be more likely to react in a hard working way since their boss is working hard. A big reason why I would pass on work I should be doing to others was because this is what my bosses did to me. It seemed like to me that half the things my superiors asked me to do, they could have done themselves since they seemed like they weren’t that busy. Therefore, I believe if I would have had hard working superiors, I would feel like I would have to work hard too.

• 36. Jeffrey Brown  |  January 17th, 2012 at 3:13 pm

  I worked in a company developing software where employees were asked to keep track of time based on what they were doing, in other words a system called “Activity Tracking”. Various types of work were put into different categories and in the end managers could see exactly how long employees were working on what. Employees were told that this information was not used to “spy” on them or punish those that weren’t working on the right things; rather, activity tracking was just for metrics purposes. I know many employees that either did not do it altogether (e-mails were sent out to those that did not comply every week, and I would assume those that just kept on not complying got a talking to) as well as employees that would just put in data for the sake of data (not actual time data). In many ways this relates to what it appears provinces are doing to the central government, which is either flat out ignoring their requests or doing just enough to keep them off their backs.

  For something like activity tracking to be effective, employees need to benefit from it some way and/or see how it benefits the organization. In other words, motivation in the form of reward or evidence of how it is helping the company as a whole. This same tactic may be able to help Beijing and has worked in some instances here in the United States. I know of laws set by states that are, in reality, controlled by the national government through threats of removal of government funding for non-compliance (I think the drinking age is one of these). Though this is more of a negative consequence for not following through, perhaps something similar could help Beijing. If provinces are expected to abide by the central governments requests, they need to 1) have motivation for doing it 2) know that by complying they are helping the nation as a whole 3) either be rewarded for complying, or be punished for non-compliance (or a combination of the two).

  On another note, I find the spread between supply and demand to be very interesting. One would think that the invisible hand would step in and balance the market, but that is coming from a westerner’s point of view. I have to wonder who is funding these ventures (the government?) and what the benefit is to keeping it going. I would think there is no way any of the real estate development mentioned in the articles could be turning a profit.

• 37. Ashley Tyra  |  January 24th, 2012 at 10:31 pm

  I have worked in many restaurants in the past, and there have always been issues with getting employees to work during downtime in between rushes. The owner of one restaurant I worked in gave the general manager specific “deep cleaning” instructions for servers to complete when they weren’t serving tables. At first servers were very reluctant to comply with the owner’s wishes. They would much rather work when they are earning tips from serving a customer’s direct needs. Servers were far more concerned with earning extra money for themselves rather than helping the restaurant as a whole by completing “deep cleaning.” Because it did not directly benefit them to perform grungy tasks, servers ignored the owner.

  What type of a person has the best chance of eliminating or curbing issues like these? In this situation, the general manager wasn’t afraid to lead by example. His actions led to servers willingly cleaning. The reason why this turned into a great example of how to get employees follow instructions, is because the general manager was willing to scrub right along side the servers. When he had slow points in his day where he had nothing to do, he would clean the dirtiest thing he could find.

  Although this may not work in large-scale situations, it worked in a small business. I believe that it is always important to understand what the repercussions of instructions are on the people that have to carry them out. The general manager knew that cleaning a restaurant is not easy work, and if he showed employees that he would do it then they would have no excuse not to join in themselves.

  From watching the videos, anyone can see there is an obvious disconnect among the government in China and the needs of its provinces. The overarching problem in both of these cases is the disconnect between the top (the Chinese government or the restaurant owner) and the needs or goals of the bottom. Massive oversupply of new development will boost the GDP now, but this is creating a large problem for the future. In an attempt to keep a false sense of growth, the government has ignored the fact that these buildings are not being populated, nor will they be any time in the near future. Will China be able to escape the looming pop of the bubble? Only the future can answer such a question.

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