In terms of transaction costs and relationships, I guess the place to start is the outright cost of attending a University. As we discussed in class today, some of the most valuable experience from our time in school is not derived from course material itself but instead by sharing with peers, and thus due to that value there is a transaction cost (tuition) for the interchange of ideas. In addition, many clubs and activities will have a little thing called dues, and in order to participate in the club, organization, or social group members must pay up. In pure social relationships, I envision transaction costs being the time and effort needed to be invested in order to develop quality relationships.
Thursday, September 12, 2013
Organizational Splits and Transaction Costs
In the course of my undergraduate career I have been fortunate enough to have been able to associate myself with a wide variety of activities, each of whom has had its own, unique, organizational structure. I have seen various changes occur, some that I agree with and some that I have not. One club ended up experiencing a complete overhaul last semester, with a leadership turnover from the ousted group of older students to a younger batch of newcomers. It was the RSO version of political scandal and in order to refresh the club's good image, anyone associated with the way the club was being run was forced out. Officially I guess I'd call it a change in the outward presentation and the main message of the organization, which subsequently influenced the way it was being run. The scandal ended up driving me away as a member and I am no longer associated with that organization. Even more interesting to me have been the organizational splits (opposite of mergers) that I have witnessed/experienced n the last year. One through an RSO/club team that I am heavily involved in and the other at work. Midway through last year the Illini Rowing Club team decided to officially split into two separate organizations: one for men and one for women. I am now vice president on the women's side. Organizationally, the split was effective and smooth and we have since doubled the funding we receive for an ever growing team. It has also worked out well in terms of work distribution. We have two official executive boards, but since we both practice the same sport we are able to better allocate the various work involved in running the club. Where last year I would have been trying to coordinate for 65-70 people at once, I am now only really in charge of 35 or half of that, and the increased work distribution definitely makes less work all around for all members and also helps the team to be run more efficiently. What is interesting is that I had a very similar type split occur at work last summer. The umbrella organization decided it was in the best interest of the company to officially split into two factions. Like the rowing team, the two new parts do not function in the market as competition but rather as components to the larger part. By splitting, they were better able to allocate and specialize, and again the split made the running of the organization much ore efficient.
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The breakups you talk about are interesting. I would have like to learned more about the why behind. You mentioned the scandal in the first instance, but didn't really get into causality in the other cases. Sometimes larger organizations are better. There must have been issues that made it harder to be large.
ReplyDeleteI didn't know we had a rowing club. Where does the rowing take place? Is there some river in town that I'm not aware of? In this case the puzzle is perhaps is why one structure existed initially and then a different one emerged. Why was it thought to have mixed genders in the first place?
In your last paragraph you are using the expression transaction costs inappropriately, where you are confounding it with production costs. We should be sure to discuss this in class, as it is an important distinction to understand.
I also didn't know we had a rowing club at school, but fortunately I happened upon them last year on quad day and have been competitively rowing ever since. We have practice 5 mornings a week (and some weekends) usually splitting time between indoor practices at the ARC on the rowing machines, called ergs, and outdoor practice which we do at Homer Lake which is 12 miles south-east of campus. I can also talk to your question of why the split happened. In the case of the crew team, when it was initially founded it was a small group of people participating. Wouldn't have made sense to have a men's team and a women's team with such a small group of people. In the last couple of years however our size has increased drastically, as has our level of competitiveness. Thus splitting in half has been warranted in the current state of the club where it wasn't a few years ago. Another reason for the split comes from the goals of my coach. In current collegiate rowing, Women's Crew is a NCAA sport whereas Men's Crew is still a strictly club based competition. As my coach has the hopes of getting a Women's Division I program started here at U of I, it made sense to make the team two separate entities.
ReplyDeleteI definitely wasn't sure about transaction costs so talking about it in class would definitely be useful. If I were to take the crew team as an example, would transaction costs include: cost of recruiting new athletes (advertising, time), cost of participation (dues, time), as well as the cost of maintaining club order (coaches, communication with the RSO office , communication with Campus Rec). Not sure if those are any different than those I listed earlier, but figured I'd at least take a stab at getting it right.
I also did not know we had a rowing team here at the U of I, but I am very familiar with Homer lake because I am a flight instructor here at U of I and I fly over it frequently. With a split of the genders and the increase in funding, I am curious as to why/how funding was able to increase so much with the groups now being separated in smaller numbers of people. Was there any significant change in the organization that allowed for the increase in funds? I can definitely see how managing 35 people instead of 70 allows for a lower transaction cost because you can more closely communicate/supervise efforts to get this funding into the organization through your efforts. With the organization still growing larger and larger, do you think there will be need to change the structure of the organization again, if being too large seemed to be a problem before?
ReplyDeleteI am interesting in the scandal that dismiss an RSO. In this case, if people still want to maintain the organization and rebuild the reputation, does it mean that they need to pay a high transaction cost or is there a name for this cost? After the complete change in the organization and most people have quitted, how the newcomers attract students when all the members are forced out.
ReplyDeleteI don't involve with any sport team in the college so I am not that familiar with how to run an sport RSO. I think the split of organization based on gender is interesting. The split will create a larger market for both organizations. Would it increase the input of time and management? And is there any interaction between two organization after the previous one split?
After I read Prof. Arvin's comment, I am kind of confused what should be the transaction cost in this case. Will it be the communication efforts and training for members in the organization? Honestly, it is a little bit confused to distinguish transaction cost to production cost.