Friday, November 9, 2012

The Triangular Principal-Agent Problem

The Triangular Principal-Agent Problem
To demonstrate a real-life analysis of the triangular principal-agent problem I will return to my experiences in working at the supermarket. My personal experience at the supermarket did not involve two principal agents, but all department managers experienced this. For this example I will use one of the departments I worked in, the deli. The deli manager maintained the deli department, had an assistant manager who was authorized to do much of the same duties as him, and oversaw a small staff of full-time and part-time deli workers. The deli manager acted as a principal to his staff, however he acted as an agent as he had to answer directly to two principals. One of these principals was the store manager who oversaw all departments in the specific store location. The other principal the deli manager had to answer to was the company deli coordinator. The company deli coordinator was an employee of the company of the corporate level and was in charge of the deli departments at each store location. This triangular relationship worked that the two principals were mostly independent of one another, neither had any power over the other, however they both had power over the deli manager.

The main function of the store manager as a principal to the deli manager was to ensure that department revenues were up to par, customer service initiatives were followed, and the department remained clean and presentable in accordance with the rest of the store. The deli coordinators position as a principal to the deli manager was to ensure he was following company-wide department initiatives, purchasing the right inventory, and keeping up the general success of the department. The store manager's primary concern is store-related issues whereas the deli coordinator's primary concern is corporate company wide issues. These concerns occasionally overlapped but each principal had separate methods and tools to resolve them. Because both principals often dealt with different aspects of the department's success, there was little tension between them however there would be occasions in which it would be problematic. For instance, if the number of catering orders into the deli was exceptionally high. The store manager would have the department manager put the more experienced and better workers on the catering orders as they tended to be expensive and difficult to make. This left less experienced and sometimes less qualified workers to man the deli counter and customers in the store. If the deli coordinator was to come to the store at this time he would see that the department was being poorly staffed and would direct the deli manager to rectify this. The deli manager, rather than see tension between his two principals would often fix this issue himself by managing the catering orders himself or some other inconvenient method that was acceptable to both principals.

If the deli manager wanted to strictly follow the desires of the store manager, he could hypothetically disregard the deli coordinator's initiatives in search of greater revenues and improved customer service. If he was only to follow the deli coordinator's demands then the department could end up dirty and unkempt as this is not the primary concern of the deli coordinator.

1 comment:

  1. The situation you have described for the deli manager is sometimes called a dual reporting structure. It is normally not viewed as a desirable thing, but the individual can be tugged in different directions. But as many organizations have something of a matrix structure, it is typically hard to avoid de facto.

    Also, and while I realize that some of these notions are new to you, there was some awkward word usage in your piece. Being the principal is typically a passive role. It is the agent who takes an active role. So we usually don't say that one person is the principal to another. When you say that, you really mean that the person was the other person's manager.