Assignment:
Review the book At Sears, Eddie Lampert's Warring Divisions Model Adds to the Troubles By Mina Kimes
1. In a post on the Atlantic in 2012, "How Micromanaging Educators Stifles Reform," Wendy Kopp argued that
"We've tried to hold educators accountable for student performance without addressing the morass of process requirements that prevents them from doing what it takes to get great results for kids. We're asking educators to deliver better outcomes, but we haven't given them the flexibility and authority they need to meet high standards. ... For years, well-intentioned policy makers have attempted to safeguard children by micromanaging principals and teachers through mandates and process requirements. Our education policies are a patchwork of thousands of top-down regulations that tie educators' hands rather than empowering them with the freedom over how they run their schools and classrooms."
Interpret Kopp's argument both
(a) In terms of the three-legged stool framework (is the stool out of balance?), and
(b) Through the lens of the Aghion-Tirole model
(a) An agricultural economist observes:
"Crew workers live in fear that growers will cut their piece-rate pay-either now or next year-if they perform at their full potential. Some growers who have understood and overcome this trust issue have had employees make three times the minimum wage and more. ....Once standards are set, a farmer may lower the requirements but never make them harder without losing trust. I have a collection of horror stories."
Similarly, a blogger in the enterprise software business writes about sales compensation plans:
"Never ever change a plan other than at the beginning of the year. Just remember that sales commissions are the easiest checks in the world to write, and just because some guy on your team is making an obscene amount of money doesn't mean he didn't earn it."
Briefly describe this "trust" problem in terms of a "trust game" (no game tree required): what do Trust, Honor, and Betray stand for in the case of explicit incentive plans?
2. Read the attached (lengthy but a quick read) article about Sears from last summer. (b) Describe how the article illustrates
- the pros and cons of a multidivisional organizational structure
- the tendency for division managers to distort upward communication
- double marginalization.
(c) In what sense---according to the article---may Eddie Lampert have moved Sears to a "wrong" point on the incentives-coordination frontier, as a result of his reorganization of the company five years ago?