19-4 Job Auction When China reformed state-owned enterprises, it tried a new app

Question

19-4 Job Auction

When China reformed state-owned enterprises, it tried a new approach to choosing managers: it put managerial jobs up for auction. The bids for the jobs consisted of promises of future profit streams that the managers would generate and then deliver to the state. In cases where the incumbent manager was the winning bidder, firm productivity tended to increase dramatically. When outside bidders won, there was little productivity improvement. If incumbent managers were not generally more qualified, how can you explain this result?

Explanation / Answer

An outsider tend to overbid with an eye to get the job. In contrast , an insider manager bids a realistic performance , which is achievable. The insider manager understands the factors that affect the performance of the organization and tries to take control of those factors.People make or break organizations. There is a greater chance of an insider getting the support and cooperation of employee in comparision to outside bidders..Further , an insider manager has a long term prospective with regard to his association with the enterprise. An outsider tastes the water and if he doesn't like the organization , he will leave for a better enterprise.Therefore internal managers are a better prospect for being given the responsibility to manage the enterprise.

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