ABSTRACT

In the course of previous chapters, we have frequently had occasion to refer to the relative power of different groups within organizations. In Chapters 3 and 4, we proposed to define the implicit goal of an organization in terms of a Nash product where the utility gains of members, or groups of similar members, were raised to a power reflecting their ‘weight’ in the organization. The weights assigned to the various groups —if they have the option of bargaining explicitly or implicitly—measure their power in affecting the distribution of the surplus or payoff generated by the organization. The power of a group or ‘party’ depends positively on its ability to inflict harm on other parties (i.e. diminish the utility of their members) and negatively on the harm or disutility it may inflict on itself by carrying out a threat. One such threat is the party's withdrawal from the organization (e.g in the case of labor, a strike; in the case of the owners, a shutdown). The harm the coalition of employees does to itself consists in the loss of wages, salaries, and bonuses, which may result from an immediate cessation of payments if the threat of withdrawal is carried out and/or from the diminution in the organization's residual and the share of employees in it; the harm the coalition of owners does to itself is the loss of revenue and/or profits resulting from a shutdown if that threat is carried out. Given the strategies available to a party, its power will be reduced by the risk aversion of its members and by their impatience (the higher their rate of discount of future gains, the lower their power); it will increase with the extent of information they have about the other parties' strategies and other factors affecting the outcome of the negotiations, with the opportunities they may have in other organizations or in working by themselves, and with their skill in negotiation 1.