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You are here: Home > Current Topics > Mind your Business > 10 November 2003 |
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Postal Strike: The cause of the action is not just one issue but is the culmination of a lack of (ironically) comunication between management and the workforce. A brief history might help to put things into perspective. Royal Mail have suffered extensive losses in recent years - from a position of making huge profits! There was talk of changes to working practices - for example only one delivery per day rather than two and cuts in the workforce of up to 30,000. Needless to say the proposals were viewed with horror by the CWU. On a separate issue, workers in London have been complaining about their pay pointing to the extra cost of living in London and seeking an improvement in the weighting allowance to compensate workers for this problem. Earlier this year, the CWU held a national ballot for strike action over the proposals by the management of Royal Mail; the results showed that in London and the South East there was a large majority in favour of industrial action but in the country overall, a narrow majority voted against it. The Union now claim that, especially at a local level, managers are using that 'no' vote as an opportunity to push through changes in working practices without agreement and are 'bullying and intimidating' workers. Workers in London who took part in a recent official strike about the weighting allowance have been particularly upset about the way they have been treated. When the unofficial action over these issues began in the London area, Royal Mail transferred some of the growing backlog to other centres who in turn felt this was an imposition and hence joined their colleagues on strike. The management claim that the changes are essential to the future of the industry, which faces growing competition as a result of legislation to open up the industry, is vital to the long term security of workers, is in the interests of the customer and that the workers are being led by left wing hard liners with alternative political agendas. Prior to the talks at the weekend, a series of claims and counter claims, both alleging bullying and intimidation, was made by both the management and the union!
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The theory at the centre of this weeks news item is that of 'Game Theory'. Game theory is used in a wide variety of disciplines to model human behaviour. The value in economics and business is widespread and can be used to help explain behaviour in oligopolies and in vaious trading situations. We will look at the theory from the point of view of a trade union and management of a business engaged in a industrial dispute. The simplest game is called a 'zero-sum game'. If we assume two 'players' then there is only one who can 'win'. The behaviour and actions of one player results in a loss to the other and vice versa. If you are 100% confident of winning then it is worth the risk as you will gain. The fact that there is only one outcome - win or lose, makes the likelihood of confrontation more likely. In reality of course there is always the option of some form of compromise.
A development of this simple game is that of a non-zero-sum game. In this the strategies that can be adopted could lead to a variety of different outcomes - you could stand to gain or lose or adopt a strategy of 'best case' or 'worse case' scenario. The union therefore could adopt an aggressive negotiating policy - if it succeeds its memers could end up gaining a significant pay increase and improvement in working conditions. There will be a temptation for the union to behave in this way if it thinks it is more powerful than the management. Equally the management could behave in that way also if it feels it has the strength. Both, however, might feel that such a 'go for broke' strategy is risky and as such they might prefer to adopt a compromise approach whereby they gain something but may have to give something in return - representing a potential 'loss'. The game is made more complex by the fact that we have a number of examples of such behaviour in the past upon which to draw and to influence our decision making processes! If other unions have successfully confronted management then maybe the time is right for a bold approach now rather than a conciliatory one?
The essence of the problem is highlighted in the famous 'prisoner's dilemma' developed by Albert W. Tucker a mathematician at Princeton University in the USA in 1950. It goes like this:
You and a friend are arrested by the police and taken to separate cells where you are interrogated about a serious crime. You are not able to commuicate with your friend. The police offer you the following choices:
This can be presented as a matrix showing the possible outcomes:
| The Prisoner's Dilemma | You confess | You do not confess |
|---|---|---|
| Friend confesses | + 5 yrs | + 8 yrs |
| Friend does not confess | + 8 yrs | + 2 yrs |
What action do you take? The outcome rests on what your friend will do. The most logical thing to do would be to confess because if you do and your friend does not, you will benefit but if you do and your friend does also, then you will only get 5 years. If you do not confess however but your friend does then you stand to go to prison for 8 years - not a good outcome! Of course if you had been able to communicate the best strategy for both of you would be to not confess.
For unions and management the situation is very much the same as that highlighted by the prisoner's dilemma; there will be a number of potential outcomes but it will all depend on what the perceived position of the other side is. In the prisoner's dilemma the primary outcome is to get the best outcome for you; if that means you have to dump your friend it it - so be it! For the union therefore, the outcome must be to secure the best deal for their members; for the management the best deal for the shareholders.
You are going to be part of a negotiating team seeking to secure the best possible deal for the group you are representing. One group will negotiate as the union representing workers in the industry and the other group the management representing the long term interests of the business and the shareholders. The scenario is outlined below. Each group must consider the proposal they are going to make and enter into negotiations to secure a deal that meets the needs of the group being represented. Remember, your guiding principle is to act solely in the interests of your interest group.
At the conclusion of the negotiations - which can include any strategy - you must write a short 'press release' outlining how the deal has represented a 'victory' for your side. The negotiations should take the following steps:
Elixir Organics plc is a medium-sized chemical company, which manufactures and processes chemicals that are then used by other businesses in the production of a wide range of applications, from over-the-counter drugs to agricultural and industrial solvents and adhesives. The dangerous nature of the chemicals used means that health and safety is a key priority for the business, much of it imposed by the Health and Safety Executive, but something in which the company has invested heavily in recent years. The industry is highly competitive and profit margins have fallen from 8% five years ago to 3.5% this year. Sales have risen steadily, however, by 1% per year and profits have been unspectacular, but declining: £120 million in 2000, £80 million in 2001 and £60 million in 2002.
The management have been seeking to try to improve its competitive advantage by introducing new working practices that involve a rolling four day week shift pattern but which mean 12 hour shifts for the workforce. The management argue that this allows them to be able to use the workforce more effectively and increase productivity which is currently 3% below that of the company's key competitors and well below that of its European rivals. The four day week would allow the plant to be staffed 24 hours a day and thus seek to raise productivity. The company are also looking to increase its margins by cutting costs, especially in preparation and checking of chemicals which currently takes up production time. Checks are necessary to ensure that volatlity is kept under control and that compounds are rady to use at the appropriate stage of the production process. The company currently carries out a fire and emergency safety exercise once a month but is proposing to make this once every two months as it takes out three quarters of a days production to carry it out and its procedures are very well drilled and efficient for such an eventuality. Wage levels have been static for the past four years for the bulk of the workforce because of the difficult economic climate the company has operated in.
Concern has been expressed however at the restructuring of the Board of Directors remuneration packages which have been changed to a cash and share option scheme with the proportion of the share option increasing from 20% to 60%. Shareholders feel this will provide greater incentives to raise profitability. The salary, including bonus payments for the top directors has risen by 120% last year with the managing director earning in excess of £1 million per year. The management team has gradually changed in recent years and now consists of a group headed by a chief who has a background in retail marketing. Staff currently get standard benefits of a company final salary pension scheme - which the management have been considering abandoning as it is too expensive - and 25 days holiday per year not including bank holidays. There are canteen facilties on site but the food is not subsidised.
The union membership on the site is solid, with 98% of staff enrolled as members; there has not been a tradition of militant activity by the workforce but there has been growing concern about the more aggressive business style of the management team and the push for greater productivity and profitability. The management for their part point to the problems the firm is facing the the wake of the growing pressure from groups opposed to such plants and the ever more stringent controls and regulation on the industry. The competiton in Europe do not seem to have such heavy constraints and they are looking for the workforce to be far more flexible to maintain productvity and profits. The management recognise that many of the staff have worked for the company for a long time but equally see this as being one of the reasons why the workforce is so resistant to change. It is not easy to get rid of workers in this industry since the skills they possess are highly specific to this type of production facility and it takes time and money to train up new staff.
