BIG PICTURE OF ECON & MANAGING
(Class 1 is a consideration of the connection between economic analysis and managerial insights at the broadest level)
2. Case of Chapman President, James Doti, on what economics can do for managers
2.1 This piece touches on some ideas that we will cover again, in more detail in later classes but provides a nice perspective on econ and managing from someone deeply knowledgeable about both
2.2. Importance of understanding and applying the econ concept of comparative advantage; Doti’s discussion shows that this is really the way that the organization links up with the marketplace in the way most valuable to the company.
-- Chapman’s emphasis on film studies based on location advantage;
-- Interdisciplinary topics/focus based on serendipity
2.3 Importance of incentives; in many ways, economics is the study of incentives and how people respond to them and changes in them.
-- Preferences matter for choices along with incentives; in an organization basic people differ in their personality composition, such as ethical integrity; however, preferences do not
often change a lot or rapidly so that incentives are the real lever to influence outcomes -- Incentives are a way of connecting to value of people (attracting-retaining)
-- Doti emphasizes the importance of recognizing both monetary and non-monetary incentives (recognition); money matters, but money isn’t the only thing that matters
2.4 Importance of identifying sunk cost in decisions
-- Doti emphasizes importance of recognizing failure/priorities;
-- Often, people misperceive sunk costs as “all money we’ve invested”
-- Chapman consideration of $1million into new classroom facility already started v.
student union
2.4 Pricing tools and ideas
-- The tool of price discrimination: pricing according to consumer valuation by
individual or group; a widespread practice in higher ed
-- Doti notes limits of applying this pricing template in all situations; price
Discrimination and its limits, difficult to do in markets that are highly price competitive
3. Constrained optimization as framework for organizing thinking
3.1 BSZ present the shell of the framework of constrained optimization (maximizes or minimizes some objective while limited by some constraint or boundary) which is the most widely used way of organizing thinking in economics
3.2 This is how economists think about choices (individual, firms, ...)
3.3. Organizations need to be clear on objectives – what they are trying to do
-- connection to “mission” focus of the 1990s; if you don’t know what you are trying to do
from a marketplace output (quantity/quality) perspective, how can you expect employees,
managers to do their jobs well (BSZ reference to “Star Trek” mission)
-- Clarifying objectives more important as organizational output becomes broader in scope
and more quality oriented
-- Objectives can be too broad (emphasis in the 1990s)
-- Can also be too narrow (HBS’ Max Bazerman more recent study/emphasis on goal setting problems where goals don’t put enough weight on things like integrity or lack of recognition that some goals, such as ethics, cannot be about outcomes
3.4 Clarifying organizational/project constraints critical
-- World at War example; Winston Churchill a great visionary; able to envision very valuable strategies, but known as “adventurer”before the Prime Minister job fell to him in 1940; his problem was not clearly seeing the constraints and limits to seemingly useful strategies; -- Examples of Gallipoli in WWI and Norway WWII invasions;
-- Good managers (maybe utilizing subordinates) identify important constraints without “letting the auditors take over”;
4. Importance of People: Because of its emphasis on incentives and highly analytical consideration of using “resources” including human resources, economics and economists probably contribute to the view of people as interchangeable parts and undersell some of the critical aspects of managing people;
4.1 Epigrams from Chapter 4 in my Ballfield to Boardrooms:
The number one reason why one team outperforms another is people.
▪Red Auerbach, former NBA coach and general manager
The tragedy of our times is that we’ve got it backwards. We’ve learned to love techniques and use people.
▪Herb Kelleher, Southwest Airlines CEO
4.2 People are a unique and critical resource; machines and materials add value to companies but they don’t think or feel; they can’t indentify advantages, mistakes, ... They may help in doing these, but people are the core of any business. Chapman’s James Doti, an economist, speaks to this clearly
-- They are not all alike; there is a “probability distribution” of talents, skills, motivation, ...
-- Case of Vince Lombardi, Green Bay Packers coach of 1960s
-- Lombardi’s loud, highly-disciplined, drilling style attracted most of the attention and
a generation of disciples
-- vastly very underappreciated aspect of Lombardi and likely key to his success was his
understanding of people
-- Lombardi understood importance of identifying key personnel; he spent his first months
with the team intensively studying film to assess the players that he had; he determined
to place Paul Hornung (former Heisman winner) who had been on bench in a key
role
-- Lombardi recognized that individual goals and team not the same and that purely trying
to rely on preaching team goals wasn’t sufficient; beyond his “tough management” style
he integrated (meaningful) recognition of individual excellence as a motivational tool
with regular handout of weekly (small) monetary awards each Thursday
5. Managing v. Meddling: A big temptation in management is to overdo it; managing too far down or too actively; we will discuss decisions rights in organizations in more detail in a later class but seeing this in a big picture view can be helpful
5.1 Epigrams from Chapter 8 Ballfield to Boardrooms:
Rick, you’re too controlling. Sit down. Relax.
▪Boston Celtic fan to Celtic coach Rick Pitino
Most of what we call management consists of making it difficult for people to get their work done.
▪Peter Drucker, management expert
5.2 Sports examples: 1983 Houston team and coach Guy Lewis’ decision to step in and slow down the championship game; Rick Pitino’s experience in Boston.
-- While managers can be complacent and do too little, the curse of many active, success-oriented managers is to do too much.
-- Organizational processes (all processes) have a certain amount of variation built into them;
trying to eliminate all of this variation or reduce it by tweaks and short-term, active
management only makes things worse
-- In the short term, active management only helps when there are clear-cut, identifiable,
correctable problems manifesting themselves; otherwise, reducing problems and
improving outcomes requires a longer term, process-wide consideration
