Lessons Learned

Economics of the Organizations has been a very interesting course. I wasn’t really sure what to expect when I register for this class. I had not gotten any prior reviews from fellow friends or students but decided to register after reading the course description. This class introduced me to a few new concepts that I had never been presented in any of my other economics courses. The concepts that stuck out to me the most were transaction costs and our look at the Principal-Agent Model. I think I found these two concepts the most interesting because they were for easy to relate to. We have all been exposed to or used transaction costs in many aspects of our lives throughout our lifetime. This made easier to comprehend. The Principal-Agent Model was interesting to look at because the model could be used when looking at different sports organizations that I follow, all of which have dealt with different forms of conflict in relation to player’s contract, free agent signings, and between the front office and stockholders.

I am still unsure how much I enjoyed the structure of the class. It was definitely more enjoyable than a traditional lecture because the class periods were more seminar oriented. This allowed professor Arvan to tell us stories or give us examples we could relate to, making it easier to understand the concepts. The structure also allowed us to participate without feeling pressured to relay your thoughts or ideas, as well as answer questions. However, part of me likes the traditional lecture structure because those way professors teach more for the exams themselves. But, the excel homework’s did do a good job of preparing you for the exams.

I enjoyed the excel homework because it was very unique. The spreadsheets were filled with very in-depth explanation of the material we were covering. In addition, it would tell you if your answer was correct or incorrect, allowing you to make sure you properly learned that concepts instead of just crossing your fingers and hoping you were completing the assignment properly. Generally, I found most of the homework’s to be fairly straightforward, but there were a couple that fairly challenging. I would say that on average it would take me 45min to an hour to complete each assignment.

My process for blogging remained the same over the entire semester. I would set aside a couple of hours each week to come up with specific examples relevant to the prompt and complete the assignment. I actually enjoy completing the blog posts, they prompts were interesting and they helped me learn the concepts at the same time.

I would have liked to see a few more PowerPoints available to us. There were a good number of PowerPoints at the beginning of the semester but after the first exam they seemed to fall off. I felt that the PowerPoints were a great way for me to review the concepts we had covered and reminded me what theories I needed to read back over. 

Personal Reputations

Personal reputations develop over time and are based on how we choose to act in certain aspects of our lives. A reputation is formed by people judging your actions and analyzing your social and educational progress. Some people feel strongly that is important to have a good reputation. As a result, they work harder to be successful and monitor how they act and converse with others. The description of this week’s post touches on how people have many domains, and a person’s reputation differs within each.

Throughout my life, I have felt that it was important to have a good reputation with members of my family, particularly my immediate family. I always wanted to make sure my parents were proud of me and that I was the type of person that my younger siblings could look up to. When I was younger, my reputation was mainly focused around how nice I was to my siblings and other peers. Truthfully, I was on a bit of a short leash when I was younger. I was very nice with other children but I was always giving my siblings the business, whether that was fighting with them or poking fun at them. At a certain point, I found myself losing privileges or getting grounded when “being mean” to my younger siblings. As I got older, I matured and began to build better relationships with my brother and sister. I also began to feel the pressure to do well in school. As the years went on the classes got more difficult, I showed my parents I was an intelligent and driven individual by getting good grades. I continued this work into high school to make sure I kept my reputation as a good student intact. In addition to getting good grades, I made sure to stay out of trouble in high school. I never had a detention, made sure to never ditched classes, and tried to stay away from the party scene so I wouldn't have any run ins with the law. I asked I would help my parents with little errands, such as going to the grocery store or carting my brother or sister to or from school, sports, and friends’ houses. As a result, my parents had a lot of respect for me and trusted I would make smart choices. This came with certain benefits, like getting to stay out later or getting reimbursed for running errands.

Today, I still feel that my reputation within the family is important and continue to work hard to be successful. I make sure that I keep in contact with them, giving everyone a call or text to see how the week, work, or school is going.

Now I’m not a perfect child. There were plenty of times that I liked to stray away from suggested behavior. It is a bit difficult to think of specific examples now, however, it could involve getting into one of the many arguments with my parents or siblings and/or attending an event I didn't have permission to go to. I never thought about “cashing it in,” because I never felt the need or want to. I knew that abandoning my reputation would not pay out in the long run. The actions that I chose over the years helped solidified a good reputation with my family, and set me up for all of my accomplishments.

Principal-Agent Model

The principle-agent model in the real world arises when conflicts of interest take place between a principal and an agent. I have not been put into a situation in my life however; there are plenty of examples that can be looked within the public sector. One example of this model is the current dispute between the Barclays Bank and its shareholders.

I am a fairly big soccer fan and enjoy watching English Premier League soccer. My favorite premier league team is Manchester United whose net worth is approximately $420 million. The Manchester United football club is owned by Barclays Bank. Naturally, I have been monitoring this story on the off chance that it will affect the team.  Currently, the bank is facing much criticism from its shareholders for its excessive bonuses payments to its employees. Over a year ago the board voted for proposals to pay approximately 2.4 billion euros in bonuses for its employees. The shareholders feel that this is an extremely unnecessary and is an improper use of money, especially since much of the proposal is funded by them. Most feel they deserve higher dividends and/or that it should be invested into the Manchester United Football Club.

Barclays is faced with a difficult situation because the proposal is best for their own growth. Without the bonuses a large number of top executives threatened to part ways with the company. These being top executives, they could not afford to lose arguably the most important employees within their organization. As a result, the proposal was voted for in order to make sure they retain profits and continue to grow as a firm.

When two principles don’t see eye to eye, it is best to look at the opposing viewpoints and try to come up with a solution to the problem in which both sides come to a compromise. In this case, Barclays should have expressed the need for the bonuses, relaying that without them it could have impacted the net worth of the shareholders stake in the bank. In addition, Barclays could have agreed to lower the amount to money the proposal included. However, this is much more complex then it seems because there are so many players with different beliefs and viewpoints. Never the less, proper communication needs to be achieved to resolve tensions between parties and reached a reasonable solution to the problem. The Barclays Bank failed by satisfying the decision that was in their best interest while ignoring the shareholders. This may turn out to be an inefficient decision, leading to a decrease in the amount of shareholders over the next year. 

Intragroup Conflict

Chapter 8 in Bolman and Deal focuses on group dynamics, specifically conflict and ways to manage it effectively. Conflict can take place between individuals, groups, and even large organizations. Depending on who and how many people the conflict occurs between, it is categorized as interpersonal, intragroup, intergroup, and interorganizational. Throughout my years at the University of Illinois I have been involved in several group projects in which the members of the group have not seen eye to eye. Because the disagreement occurs within a group it would fall in the intragroup category. However, it is best to look at this sort of conflict from an organizational stand point.

                Suppose a top level manager of an advertising company gets a proposal request from an up and coming sporting goods company to come up with a thrilling commercial to attract customers. The up and coming firm has generated a lot of revenue from football gear (their most notable line of clothing and shoes), however, they are looking to break into the market for basketball equipment. If you recall, The Under Armour Company made this same move a few years back, but for this example I will refer to the sporting goods company as FinishFirst.

                This is a very big opportunity for RGP Advertising Group seeing as it could lead to future business opportunities with a very lucrative firm. To insure success, the manager assigns two of the company’s most experienced and highest paid employees to head the assignment. When first meeting to discuss their options, it is clear that each leader wants to take that project in a different direction. They cannot agree on the specific criteria they would like to incorporate into the ad. This is known as task conflict. Since both employees are very successful and strongly believe their way is the best way to go, they haven’t made any progress. They are hard pressed for time and the manager can see the team’s conflict level is too high causing them to struggle to be productive.

                He decides that it is best to meet with them as soon as possible to discuss what problems they are having. Employee 1 wants to make a YouTube advertisement aimed towards children and Employee 2 wants to make a TV commercial geared towards teens and young adults. After talking to them, it is clear that he will have to force them to negotiate with one another to find a solution. The group takes place in integrative bargaining so they can find a clever and creative way to solve the problem while the manager acts as mediator. In order for integrative bargaining to be successful, individuals must participate in two conflict management strategies, collaboration and compromise. Collaboration is when both parties try to satisfy their goals by coming up with an approach that makes them better off. In order for this to do this they may have to be willing conduct a give and take exchange known as a compromise.

                In the end, the two employees decide that it would be best to make a YouTube advertisement geared towards teens and young adults. Segmenting your target market to teens and young adults makes sense because there is a larger demand for basketball shoes and apparel from that age group. Although commercials are the most viewed form of ads, an advertisement on YouTube is a close second because of its popularity. 

Team Production and Distribution of Wealth

In the article titled, How to Get the Rich to Share the Marbles, the author touches on a political issue of equity distribution by using psychology concept characterized as “Share-the-Spoils,” or sharing the wealth. Although this piece is a bit out dated, it addresses the cries from individuals, specifically the Democratic Party, in the United States who complains about rising economic inequality. The margin of wealth between the wealthy and the poor seems to be growing; many are calling for an increase in taxes for the rich, which is a sort of “Share-the-Spoils” mentality. However, the author, Jonathan Haidt, concludes that this is not the answer to the economy’s troubles. Haidt’s believes that they should, “focus less on distributive fairness — which is about whether everyone got what they deserved — and more onprocedural fairness—which is about whether honest, open and impartial procedures were used to decide who got what.

It is interesting to take a look at this from a professional football player’s perspective. Generally, the highest paid players on a team roster are their high powered offensive weapons, but let’s just say that the quarterback is the highest paid player on the team. In order for a quarterback to be successful, they have to have a well-functioning offensive line in front of them. Without a good offensive line, the quarterback has no time to throw the ball, they can’t score, and they can’t win. The players on the line sacrifice their bodies every week so their team can win and are given very little praise from fans and sponsors. The amount of money a lineman makes is solely based on how much money is in their contract. Depending on the team’s performance, this can lead to bonuses, such as contract extensions or a higher salary. This is an example of a gift exchange between the organization and a player.

As stated in the paragraph above, offensive lineman put their bodies on the line, and as a result are the most injure prone players on the field. Since they are doing the most work why don’t they push for the organization to give them a bigger piece of the pie? The answer is simply based on their understanding of their role on the team compared to the quarterback, as well as concerned with the overall team production. They understand that the quarterback brings in the most money for the organization based on ticket and jersey revenue, broadcasting rights, and sponsorships. As a result, a quarterback is guaranteed to sign a bigger contract for a longer period of time. Many big time QBs will not settle for a mediocre contract. As long as the quarterback has the tools for the team to be successful and put points on the board, then the terms of his contract were honest and open.

Although the distribution of equity within the United States economy and the distribution of wealth between professional football players is not necessarily the best comparison, I believe that it does relate to Jonathan Haidt’s conclusion in the article. Individuals should focus less on the distributive fairness; instead they should put their heads down and strive for success and look at the big picture. Taking money or specifically targeting wealthy individuals will not improve the economy. The wealthy individuals are what drive the economy, just as a quarterback is what guides his team to a win. The more wealthy individuals can pump into the economy the more it will improve, so there is no reason to divide up wealth between people.

Income Risk

This is a particularly interesting prompt to think about now that I am a senior at the University of Illinois. Throughout my career as a student, I have been asked where I see myself in five to ten years and the steps I will take to achieve my goals and aspirations. It being my last year of college, it’s a good time to look back at some of the decisions I have made, and how they’ve affected me. It’s easy for me to look back and say I could have done this or that differently, but generally I feel like I have made moves that have put me in a position to be successful. However, on the topic of income risk, the choices I made as an incoming college freshman may have increased it.

            Coming into as a freshman I was a declared Statistics and Computer Science major. When applying to U of I, I was torn between choosing a Stats and CS major or a major in Finance. I ultimately went with the CS major due to the increasing demand for this degree as our society becomes more and more technologically dependent. However, after completing a CS class I decided that the major was not for me. The business aspect of companies and organizations is what I am truly interested in, and my personality and attributes fit well with what is needed to be successful.

            As I came to find out, the College of Business is extremely competitive and challenging to transfer into. They require approximately a 3.8 GPA to be able to switch your major to business degree. Since my GPA was not high enough, I did not get accepted. Economics was my clear second choice seeing as it relates to the business world. The only issue I had with is was that it required you to take both Calculus 1 and Calculus 2. I am fairly strong in mathematics, but the university gears their calculus classes towards engineering, making them very challenging. I was confident I would do fine in Calc 1 but was worried that Calc 2 could hurt my GPA. I neglected to take them on campus on chose to complete them at the local community college by my house during the summer sessions. I would have liked to complete calc 1 on campus however, ECC requires their students to take both levels on their campus to receive credit.

            So each summer of my college career I took a class, in order: 4^th level of Spanish, Calculus 1, Calculus 2. In addition, I worked part time for a company called McKesson to make some money. However,  this ultimately hindered my chances of landing any internships that related specifically to the career I would like to pursue (Consulting, Commercial banking). This is because most internships, on top of being in Chicago, required their interns to work 40 hrs a week. It was just impossible for me to to work a full day, catch the train, and make it to  the community college at a reasonable time. It has been a struggle for me to secure an interview with several firms I have applied to without any strong resume builders. Unfortunately, this may lead to a long and stressful job search resulting in a salary that is lower than I desire/deserve.   

            As for debt, I know that I will have some student loans to pay off which were needed to be taken out so I could attend The U of I. I have been lucky enough to have two very loving and hard working parents that have helped me pay for a great deal of my tuition, lightening my load as I take my first steps into the real world. 

Illinibucks

The use of Illinibucks is an interesting concept that would have been utilized by a large portion of the student body. The allocation of each student’s illinibucks would depend on their personal preferences as. In my opinion the most popular uses for the Illinibucks would be for student housing, sporting events, and registration.

Assuming that the Illinibucks are gifted to students as soon as they are admitted to the University, there are a large number of students who would use them to get place in a specific dorm that they want. When I was accepted into the University of Illinois, a lot of people, including current and former students told me where the best place to live on campus was. Every person I talked to told me to live somewhere in the six pack and not to get stuck in the campus housing in Urbana known as PAR and FAR. I applied for the inkberry and was lucky enough to get it. I was slightly indifferent about what part of campus I lived in; however, a few of my friends had their hearts set on living in the six pack. One of them was placed in PAR. If he had the choice, he would have definitely used his bucks to move to the top priority for housing.

Although it is hard to believe that someone would use an opportunity like this on one of our lack luster sports programs, there are plenty of diehard Illini fans on this campus. The Illinibucks would not be able to count as US currency, but it would allow students to secure priority for certain games to buy tickets. This would most likely be utilized for games against top ranked opponents, homecoming, or father’s weekend. For situations like this, the University would need to bump up the price of the Illinibucks for each game to keep the amount of students using their bucks at a respectable level. There is a good chance that students would spend their Illinibucks to secure priority on tickets to a certain game and then end up not purchasing them. As a result, the University would lose potential revenue that could have been gained by selling the tickets to local fans. I would most likely spend my Illinibucks on sporting events, specifically on Illini Basketball tickets. I would pick one game out of the year, in which they are playing a highly ranked opponent, and spend them all on that.

The University would have to keep the registration system the same where the time frame for registering for classes is based on age and number of credits. However, Illinibucks could be spent to get you into a class that is perhaps full or are restricted because they specifically required for other majors. Because there can only be a certain amount of students registered for each class, this would mean that the person who registered the lasted would be kicked out. This however could have serious ramifications. Popular majors with specifically required courses, such as engineering, fill up very fast. Let’s say that there were two industrial engineers students, one a junior and the other a senior. Both need to take a course in order to graduate. The senior was not able to register for the class last semester, and luckily was able to get into it this year. The junior decides that he is going to take the class in order to make his course work lighter next year. He uses his Illinibucks to register for the course, kicking the senior out. The senior has already used some of his bucks and does not have enough to re-register for the class. As a result, he will need to pay for another semester so he can finish his requirement and graduate. 

Team Effort

Throughout my years I have been a part of many sports teams and worked on a number of different group projects, all of which require a great deal of teamwork in order to be successful. I have also been a part of several volunteer organizations that have set up events in order to raise money, awareness, and benefit the community. My favorite team that I have been affiliated with was the Annual District 214 Alternative Basketball Tournament held at Forest View High School in Arlington Heights, IL.

            Alternative schools are a different path that some teenagers need to take in order to be successful. Their curriculum is based around the core classes that every student takes; math, science, English, health, physical education, drivers education, etc. However, they are geared towards individuals who have behavioral issues, as well as trouble focusing in the classroom, or other things of that nature. Unfortunately, the alternative schools in district 214 do not have extracurricular activities they are able to participate in year round. Over the years teachers from the schools in this district have put together several different basketball tournaments for all willing participants from each school, forming teams based on age, gender, and talent level. In 2011, my senior year of high school I was a member of the team that put on the tournament at Forest View.

            The tournament had become fairly big in recent years, and there were a lot of things that needed to be accomplished. Based on Bolman and Deal’s text, the team was set up in a Simple Hierarchy fashion; however it was more of a hybrid. There were five or six senior members of the staff that acted as the top-level managers. All the information and big decisions flowed through each of them before they were complete. Below them volunteers were divided up into several groups. These groups consisted of individuals to advertise the event, set up concessions, contact the participants, organize check-ins, and those to find volunteer referees and score persons.

            I was part of the group that was to find volunteer referees and score persons. We were able to recruit many volunteer referees from last year’s tournament, several high school basketball players from around the area to run the scoreboard and scorebook, as well as extra volunteers who were willing to help out wherever they were needed. In total, the staff was about 60 people.

            On the day of the tournament, the team became more of an All-Channel Network.  Members of different groups helped where help was needed to make sure that everything ran smoothly. This would be an interesting scenario for Bolman and Deal to touch on; a organization that changes its team structure.  Overall the tournament was a success, every group was able to complete their assignment without any trouble.

Opportunism

Opportunism is defined as the taking of opportunities as and when they arise, regardless of planning or principle. In economics we tend to think of it as taking a chance for personal gain. Most individuals have been presented with a scenario in which they had the option of acting opportunistic or playing it safe. Growing up my parents always preached to think before you act; a lesson that has stuck with me for much of my life. Most times I find it best to play it safe, analyze the situation and make an educated decision. However, I have found that there are plenty of times where it’s best to act opportunistically. Acting opportunistically has a chance to turn into a great story or experience. There is one time in particular in which I did not act with opportunism and it end up closing a door to a great opportunity.

A few years ago I was looking for a summer job that would work well with a summer school. The class that I took was my fourth year of Spanish, a requirement that I would need to complete in order to graduate this May. Spanish wasn’t my favorite subject and I felt that it would be less challenging and would make space for a more interesting class I could register for next Fall. The search went well and I was able to find a great paying job that would pay 13.50/hr at 30 hrs a week that fit well with my night class at Elgin Community College. However, a few weeks prior to my start date I was presented with a very good work opportunity from my Uncle at Garrets Popcorn in downtown Chicago. One of their interns had dropped out and they were looking for someone to fill the position as soon as possible. I was fairly ecstatic when I received the call and was given number for the supervisor to go over the specifics.

I got in contact with John (the supervisor) the next day. He informed me that the job work require me to work 30 to 35 hours a week, Monday thru Thursday. I wanted to accept the job immediately but I had my doubts about whether it was the right move. I was disappointed with the pay rate at 10.25 and hour; however I would be working on Wacker Dr., right on the Chicago River. In addition, I would be working a team of other people around my age. It did however conflict with my class at Elgin Community College because of the time it would take to get back from the city. I told John that I would give it some thought and get back to him in a couple days. He said that it was fine but he was also in contact with another person for the job and the first one to get back to him would get it.

The next day I was seriously contemplating rejecting the offer and sticking with my previous plans. However, the next day I had a change of heart, I felt that the working in Chicago would be a great experience and teach me much more than working the other job. I gave John a call the next day only to find out that the other prospect had already accepted the offer and filled the position.

Although it was nice to get Spanish out of the way, the other job was extremely boring and I did not get any enjoyment out of it. If I would have acted opportunistically I would have secured a position at Garrett’s which would have been a much more enjoyable and useful experience to carry along with me in the future. 

Project Transaction Costs

Over the past few summers I have had the pleasure of working for a medical supply company called McKesson. McKesson is one of the largest distributors of medical supplies, products, and equipment; they ship to hospitals, private practices, and homes all over the country. These products included everything from medicines and syringes to food supplements such as Pediasure. Working for this company has introduced me to the world of supply chain management and logistics. 

McKesson has several warehouses that are based by region which receive, store, and ship thousands of lines on a daily basis. In order to ensure that the warehouse is efficient, the warehouse is divided into three departments: receiving, replenishment, and shipping. All three departments are currently integrated through one system that the employees can use via a hand held computer called an RF. The RF allows employees to see how much work that needs to completed per day per department and helps the company keep track of worker efficiency and the amount of each product that is shipped and received. Before this summer, the branch of McKesson that I worked for used two separate systems to keep track of all their logistics which was based on a series of specific factors. The corporate supervisors of the branch made the decision to switch to one integrated system to increase productivity and which would ultimately save the company money. In order to integrate the system, the company had to incur several transaction costs

. Transaction Costs Incurred:

1.       Developing the product: The transaction costs for developing the system were the time it took the company engineers to design it and the amount of money that it cost to fund the process. Funding includes the salary paid to the design team and the amount of money it costs to code it.

2.       Testing the product: As any smart corporation would do, McKesson ran several simulations and tests to make sure that the program worked properly and all the bugs and problems were corrected. This takes time and money that added to the cost of the project.

3.       Putting it into play: Up until this point, most transaction cost that were incurred were at a more corporate level. However, once the system was ready to be put into place, the lower-level employees that worked in the warehouse had to give up free time and work longer hours and extra days to take inventory and make sure that the turnover went smoothly.  There were several employees that were asked to work over forty hours a week Monday thru Saturday. I played a big role in helping the warehouse switch over and was needed to work a couple six day weeks that cost me time I could have used for other activities. In addition, travel time and extra gas bought to make sure I was able to get to work on time so as to not let my team could be factored into my transaction costs. 

Donald Patinkin

Donald Patinkin was an Israeli economist who was born on January 8, 1922 in the city of Chicago. Patinkin spent most of his undergraduate career at the prestigious University of Chicago where he earned his Ph.D in economics. He was also enrolled at the Hebrew Theological College where he studied the Talmud. Patinkin is most widely recognized for his studies in Keynesian macroeconomics and for his tenure as president of the Hebrew University in Jerusalem which lasted from 1982 until his resignation in 1986.

Patikin is classified as a neo-Keynesian economist and his famous book, “Money, Interest, and Prices,” is considered to be the book that John Maynard Keynes never wrote. He was also a contributor to the theory of disequilibrium economics, which developed ideas of traditional Keynesian ideas and compared them to a more classical approach of economics. He also did some work in theories of unemployment, and general monetary economics.

I was not aware of whom Donald Patinkin was and the impact he had on Keynesian economics prior to this assignment. It is interesting to learn about an individual who has accomplished so much in his field from my home town of Chicago, as well as a former lecturer at the University of Illinois. Although his research was cutting-edge, his work doesn’t seem to have much relevance to this class seeing as Patinkin’s work was mostly based on the macroeconomics, which focuses on the economy as a whole. In this class we are more concerned with interactions at a micro level because we are focused more specifically on organizational complexities and issues.