(a parable )
The principal–agent problem, in political science and economics, (also known as agency dilemma or the agency problem) occurs when one person or entity (the “agent”) is able to make decisions on behalf of, or that impact, another person or entity: the “principal”. This dilemma exists in circumstances where agents are motivated to act in their own best interests, which are contrary to those of their principals, and is an example of moral hazard. (from https://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem)
Why do people join companies and startups but leave bosses? because a BOSS does not have the same ownership or value system as the company has. A project manager is focused on expanding his project not how profitable it is or long term effects.
A Boss is more concerned with his bonus- and will let go of good people to meet his cost /billing ratio targets. By doing so he can say he achieved profit by replacing high quality high cost resources with others.But in truth he may have damaged the company’s image as a potential recruiter
The real challenge then arises for company founders/ owners to create metrics to avoid agency conflict. or to align individual metrics to global company metrics. This is true because many teams need to work together but they have different goals.
The product team wants to push the latest release of product to get feedback on bugs, but the client services team wants to resist it and stick to stable builds (an example)
However the sum of a local optima is rarely a global optimum, mathematically speaking. A local optimum is whatever is best for the performance of an individual part, whereas the global optimum is what is best for the performance of the system as a whole. Hat tip – http://bit.ly/2Iyp3pc for amazing insights and images
many people unknowingly subscribe to a defunct management philosophy: that you can improve the performance of a company as a whole by individually improving the performance of its parts.
from the Boss’s perspective, probably the local optima is their global optima as it keep them safe from being overtaken by people better than them.
the job of founders and senior management to neutralize this very human insecurity
That is why culture eats strategy for lunch. But how do you quantify culture? (to be continued)