There are many alternatives that are used to motivate workers beyond the conventional bureaucratic ways that was once thought of as the only way to control workers. Since the 1960’s we have learned a great deal of information leading to the discovery of alternatives to bureaucratic organizations. Today, bureaucratic ideas are still widely used among organizations, however a shift in thinking occurred and the question was asked, What are the alternatives if bureaucracy it not working in an organization?
According to Max Weber, bureaucracy is the most efficient and most rational known means of exercising authority over human beings (Weber, p223). Further it is reliable, precise and stable, these are all terms that are desired for large complex organizations that need to control vast amounts of employees. Bureaucracy is based on legitimate authority, those that are being controlled by others; accept oppression as part of the work along. There are several characteristics that mold a particular organization into following the bureaucracy model, such as, rules, hierarchy, salaried careers, written documents and appointment. These characteristics serve as a guideline, or an owner’s manual of sorts that has a preconceived effect for each cause with the organization. Even if bureaucracy is working to its full capacity within an organization, there can be times when is no longer efficient to use alone. Bureaucracy is still used within organization but usually in conjunction with an alternative.
Agency Theory Defined:
The goal of agency theory is getting people to do the best job for the best price and least amount of risk. One decision is to fill a sales district with representatives called external or with an employee sales force called internal (Anderson, p 234).
An internal sales force is a company who uses their own employees to sell a product they have produced. They are employed by the organization and receive a salary, no matter if the product is successful or not. The externalized labor market consists of independent contractors who agree to sell the product for the company for this they receive a commission according to the amount of products sold. Companies who have greater difficulty in evaluating a salespersons performance are more likely to substitute surveillance for commission as a control device (Anderson, p 234). Internal sales forces are associated with complex, hard to learn product lines in which the selling districts expect nonselling activities.
As stated above, direct sales people are employees of the company also called internalized labor. The major advantage to having this type of labor is that it is easier to control because they are integrated in the company. Another advantage to internalized labor is long term meaning employees stay in the organization, they want the security of working for a company that will pay them paycheck whether they have been successful in selling a product or not. Another benefit is keeping critical people that are key to the operations and/or have a specific knowledge of task. The disadvantages include costly overhead, metering costs and mediocre performance. It costs a company a lot of money to employee a full-time person along with benefits and a retirement. Employees expect some kind of security and loyalty from the company even in difficult times. All these costs do not guarantee that the employee will perform well; in fact, most employees do the minimum amount to receive a paycheck.
To externalize labor means to outsource labor, which is done by on a contractual basis either by a large company specializing in a vast array of products or by an independent person. These outside agents are responsible for selling products for a company but are not part of the company’s integration structure. They are not salaried but are employees working on a commission only basis. In fact, these representatives may sell several different products from many companies at the same time; they are focused on the buyers of these goods. The advantages to outsourcing the sales force include customer loyalty, low and stable costs and performance is evaluated by actual sales. These independent agents have a large customer base since they are peddling more than one company’s products; they rely on these strong networks for present and future business deals. Again, when a company externalizes the labor costs remain low and are on a piecework type rate; one is only paid for what they sell. The downside of externalized labor is that the contactor focuses only on the commission, and does not offer guarantees to the products that they sell. Further, they can refuse to do any extra nonselling assignments, like conventions or extra paperwork. Some examples of independent contractors are Warner Lambert Co, Mary Kay cosmetics, Amway and Real Estate Agents. In which a commission is earned on product sales, in other words, pay is connected with performance.
Transaction Cost or Agency theory is just one of many alternatives organizations have available as a way to control employees. The findings in this comparison of external and internal labor sources suggest that when a company is unsure of what their employee is doing, it is cheaper to use surveillance as a control tactic. If a company has general product that is not complicated, it may be more advantageous to outsource since control would not be as necessary. Many companies may use a combination of both internal and externalized labor, since risks may vary according to what is sold. If given the choice most of us would pick the internal labor side, because it is secure, dependable and predictable. Organizations must way the risks with control to decide the best way a job will get done with the minimal amount of employee control.
Anderson, Erin. 1985. “The Salesperson as Outside Agent or Employee: A Transaction Cost Analysis.” Marketing Science 4:234-254.
Weber, Max. 1922/1968. “The Types of Legitimate Domination.” And “Bureaucracy” Pp. 216-226, 956-963 in Economy and Society, edited by Guenther Roth and Claus Wittich. Berkley: University of California
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