The Uses of Diversity. David Ellerman

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СКАЧАТЬ behavior is to try many options simultaneously as when eggs are spread between many baskets or when biological resources are spread over many offspring. These two forms of the parallel-oriented approach come out clearly in reliability theory.

      The one-at-a-time approach to redundancy (parallelism) is called standby redundancy. The system uses one option or subsystem until it breaks down and then it switches to the standby system. An airplane might have a standby radio or navigational system; if the primary system breaks down, it can switch to the standby system. The simultaneous approach to parallelism is called active-parallel redundancy. For instance, an airplane with several engines is using active-parallel redundancy; if one engine breaks down, hopefully the others will suffice to land the plane safely. Otherwise, they may have to switch to the standby way of getting to the ground safely, parachutes.

      Scarce resources are used to build reliability into a system. In some cases, using redundancy to increase reliability may not be technologically possible. The dual way to increase reliability is to use resources to improve the reliability characteristics of the components of the one system. Thus, the trade-off between the two logics in using resources to reduce risks and increase reliability is “redundancy versus improved elements” (Von Alven 1964, 240).

      

      These examples illustrate the second point that there is another way to reduce risks than just distributing one’s eggs between many baskets.

      The Two Ways to Get Flexibility, Performance, and Efficiency

      Flexible Options or Flexible Characteristics in Given Option?

      In the options and characteristics model, the two system logics differ by what is fixed and what is flexible. With the parallel- or exit-oriented logic, the characteristics of an option are taken as fixed, so flexibility is obtained by exiting one option and taking another. If workers do not have the desired skills for a new technology, then relocate or fire those workers and hire others with the desired characteristics. With the series- or commitment-oriented logic, the option is taken as fixed, so flexibility is obtained by changing the characteristics of the option. Workers with some commitment from the company for employment security would be more willing to learn new skills and retrain for new technologies since they would not be “working themselves out of a job.” It is not a question of flexibility or not, but of achieving flexibility in one way in one system or in another way in the other system.

      Exit versus commitment are the two logics that run through the design of institutions. The market is an institution that operates largely on the basis of the logic of exit. Economics developed first as the theory of markets and market behavior, so economics tends to see the world through an exit-oriented lens. “The economist tends naturally to think that his mechanism (exit) is far more efficient and is in fact the only one to be taken seriously” (Hirschman 1970, 16). For instance, under the exit-oriented logic all labor questions are “labor market” questions, while under the alternative commitment-oriented logic (e.g., in a Japanese-style firm), a labor question is a “human relations” or “human resources” question.¹¹

      Organizations (including political units or polities) would seem to be the natural setting for commitment-based strategies. If there are some costs or barriers to exit in the face of dissatisfaction, then the exercise of voice may be the better way to change things. Hence, one might expect to see organizations designed on the basis of the logic of commitment.

      Allocative Efficiency or X-Efficiency?

      More broadly, take an option to be a particular use of a resource and take the characteristic of the resource to be its productivity or effectiveness in that use. Then the two system logics give two ways to get improved performance and efficiency. The exit-oriented strategy is to move resources to higher-productivity uses (e.g., through the market) and the commitment-oriented strategy is to get higher productivity out of resources in the given use (e.g., in an organization). The exit-oriented notion of efficiency is allocative efficiency associated with markets. Resources in a certain use have fixed productivity so it is a question of the allocation of resources to the higher-valued uses. The commitment-oriented notion of efficiency is X-efficiency (Leibenstein 1966; 1984) where the principal variable productivity of a resource in a given use (e.g., in an organization) is human effort.¹²

      If a skill is quite standardized and available on the market, then in that case the exit-oriented logic can work in a firm. The threat of dismissal calls forth more effort. The low-trust system is self-reinforcing in its system logic. Low trust leads to highly explicit contracts with competitive arms-length relationships with no need to invest in building trust or loyalty, and thus the low-trust environment is reproduced.

      But the logic plays out differently when the jobs require more firm-specific skills and where the quality of effort is not only variable but largely hidden. If there was little mutual commitment between the staff and the management, then the staff would have little reason to put forth hidden effort and little incentive to invest time and effort in acquiring firm-specific skills. And management would have little incentive in upgrading staff skills that are not firm specific since the staff might then solicit and accept an offer from another firm that would not need to repeat the training. In firms where firm-specific “human capital” and quality effort are important, the human relations system will tend toward a commitment-based logic (see Blair 1995). A labor union can be a positive contributor to such a human relations strategy (see Freeman and Medoff 1984). High-trust relationships allow more incomplete relational contracts which require investment in building trust and loyalty so that the high-trust environment will be reproduced.

      Since low-trust exit-oriented relationships and high-trust commitment-oriented relationships each tend to be self-reinforcing, there are two organizational equilibria. For instance, in Douglas McGregor’s management theory (1960), the two equilibria based on the two logics are “Theory X” and “Theory Y.”

      There is also a motivational aspect to these two logics. The exit-oriented logic emphasized in economics goes along with extrinsic pecuniary motivation. But successful organizations sponsor another type of motivation where the individual “identifies” with the product and the organization, and also where the management shows that it “identifies” with the company staff (all of which might be seen as an “implicit contract” between management and the workers). That is motivational side of the internal commitment-oriented logic in the organization.

      The Modern Widely Held American Company

      If the exit logic fits markets and the commitment logic fits organizations, then what would an organization look like if it was based on the logic of exit? This brings us to the “model” of the widely held American corporation. To apply the exit logic, there is one complication. Who’s in and who’s out? Who are the members of the organization?

      There are actually “two companies”: the company as a legal entity and the company as a working group of human beings.¹³ The legal entity, the legal or de jure firm, has the shareholders as the members. But the members of the actual or de facto firm are the managers and workers who actually carry out the company’s business. In a small closely held company, the de jure firm and the de facto firm are largely the same. But for the large modern publicly traded American company, there is very little overlap between the de jure firm (shareholders) and the de facto firm (employees including managers). Those who are actually inside the company (the staff) are from the legal viewpoint outside the firm and have only a market relationship (employment) with the firm. Those who are legally inside the company (the legal members of the company) are the far-flung shareholders who typically have no business relationship with the company aside from the share ownership and who typically have well-diversified portfolios of shares (figure 2.3).

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