8.3 Production in teams

Academic interest in the incentive and performance aspects of working in teams has been driven by the substantial growth in the number of firms organising problem-solving and analytical workers in teams (Lazear and Shaw, 2007). Overall, the literature suggests that key tasks in large firms are increasingly assigned to problem-solving experts working in team-based environments, and that large firms are currently characterised by increasing wage dispersion as the remuneration of “star” workers with problem-solving skills most finely attuned to the team environment increases faster than the median employee (Andersson et al, 2006; Autor et al, 2003).

The use of teams is of particular interest because they come with two obvious problems: teams are time-consuming to organise and coordinate, and individual performance in teams is difficult for those outside the team to measure, creating the potential for free-riding by low-productivity members of a team. Consequently, there is considerable value in understanding the conditions under which the productivity advantages of teams outweigh these disadvantages.

The literature has identified a range of conditions under which the use of teams will increase productivity. Firms use teams when:

• Hierarchical decision-making is either unnecessary or less effective in solving the relevant class of problem. Teams are often viewed as an alternative to hierarchy in the sense that hierarchy implies sequential consideration of decisions, whereas teams suggest simultaneous and interactive consideration of decisions.
• The cost of hiring staff who embody all of the necessary knowledge and skills to solve problems is very high, but the problem can be addressed by teams of lower paid staff with complementary skills across the required range. In a team environment, the inputs of staff interact multiplicatively, so that each worker's marginal product is enhanced by combining effort with workers with different skills.
• They need to solve complex problems quickly. Teams work when they are delegated the authority to solve a problem, and this is most effective in addressing new issues where the firm has less sunk investment, because the risks associated with a poor decision are lower than those associated with an existing line of business.

This literature raises some potentially interesting questions about the current human resource practices in the public sector. First, the use of teams (both within departments and across departments) appears to be widespread, but is this consistent with the view that teams work best in an environment of delegated authority? Decision-making in the public sector appears still be to be very hierarchical, in part because of the necessity of ministers making the final decision, and in part because of the culture of risk-aversion that is so central to modern media-focused politics. Second, how good is the public sector at constructing teams that actually have complementary skills? Third, can the approaches to recruitment and remuneration in the public sector facilitate the dispersion in remuneration that is necessary to attract and retain the staff with the most high-powered problem-solving skills in a team environment?