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Brad Westpfahl, Manager, IBM

Posted: July 31, 1998

Self Organizing Resource Allocation:
Historical Precedence
Copyright B. L. Westpfahl - July, 1994

Editor's Note: The author wrote this story to help his organization understand a very different business practice he introduced at IBM - one that required no management action for assigning resources to projects, and no management action to allocate performance incentives among project team members. The business practice he introduced will be discussed at another time.

You're walking down an unpaved street in a harbor town on a sunny May morning. The crushed clamshells that make up the topcoat of the roadbed crunch under your boots as you walk past the beautiful white clapboard homes with their black shutters and slate roofs. There's a faint smell of fresh baked bread coming from the summer kitchen of one of the houses whose back fence you pass as you take a shortcut down an alley. You are heading for the wharf where three, two-masted whalers are tied up. The tools of your trade are in two large hand built wooden cases you carry, one in each hand and all of your worldly belongings are in the canvass bag slung over your shoulder. You are an experienced ship's carpenter looking to join up with one of the whaling voyages that will soon be leaving Edgartown for the world's whaling grounds. You are a part of one of the most successful business ventures to ever rule its worldwide industry: New England whaling in the 19th century.

The success of the voyage you will join -- in fact, the success of this entire industry -- is based on a simple principle. Each vessel must have the right complement of crew who posses the right blend of skills and represent the very best talent available from the pool of whalers in New England. Those crews are put together by each captain, the master of his vessel, who interviews potential hands from a variety of disciplines. He needs skilled harpooners, blacksmiths, able bodied seamen, cooks, ships carpenters -- like yourself, officers, navigators and a host of other skills. He will sail as soon as he can assemble a complete crew and the provisions for his ship. He is anxious to sail since his investors could put their money elsewhere up to the time he finalizes the preparations and leaves port.

Whalers form a surprisingly small and tight knit community. You've been at your trade for ten years now. Four successful voyages have take you all around the world. In that time you've had a chance to hear stories from men who have sailed on just about every vessel in New England. You've come to Edgartown from New Bedford where your last voyage ended because you knew that the three ships preparing their crews here are among the best available in New England. You know enough after ten years to know which ones to avoid. Only the new hands, fools or the drunkards would sign up with some of the ships or captains now sailing. Your skills are sharp enough to save you from taking those additional chances in a business that is dangerous enough even when being practiced well. Yes, given your reputation and the letters of recommendation you carry you should be able to do quite well here.

The negotiations that will take place between you and each of the captains are part of a bidding process that serves both you and them. Your goal will be to convince the ship's master that you have skills that he needs and that he should pay as high a price to acquire them as you think they are worth. His goal will be to convince you that his vessel and the crew he has assembled is so strong and so sure to succeed that you should be willing to sign on for next to nothing. There is a common unit of currency that you will use in your negotiations -- the share. That is the portion of the ship's take that you will receive as pay at the end of the voyage. You have done your research and know that these ships all plan to be at sea for about two years and the reputations of their captains are equally strong. Therefore there are only two things that you need to know to make your decision: how strong a team has the captain already signed-on for the key positions and what share would he give you to sign-on and join them. With those pieces of information you will be able to make a choice and commit yourself to two years at sea trying to drive up the value of the voyage and so increase the worth of your share. During that time everyone you work with will be trying to do the same.

You are quite sure that each captain will be impressed with your skills. Naturally, they won't come right out and say so. If they want you on their voyage they are going to try to buy your services cheaply. Any shares of the voyage that they don't spend on hiring crew goes into their pockets. Each master has good cause to look you over with suspicion. If he offers you more shares than your skills are worth then he will overtax the rest of the crew who will have to do the work he planned for you. If he offers you too little then he will run the risk of being outbid by his rival captains. You each know how the system works and intend to use it to your advantage. In your first voyage you signed up as an able bodied seaman for a single share -- one one-thousandth of the ship's take. Fortunately, your good luck was serving you better than your good sense when you signed up for that voyage. You signed on to the Charles W. Morgan, a sound ship built to last with a good captain and crew. That combination produced a take that was considerably greater than you had expected, making your share worth more than you anticipated. Not only that, the hard work of the crew allowed you to fill all of the whale oil barrels in the hold in eighteen months, six months sooner than anyone thought it would take when you left New Bedford.

During that eighteen months you got something that was even more valuable than the share you had signed on for -- you came under the wing of the master carpenter on that ship. He had been at his trade for over thirty years and had sailed on twelve voyages for a total of twenty-six years at sea. During the idle hours of that voyage you worked hard to build your carpentry skills. You also built the two chests that you still carry, inlaid with whalebone from a humpback that was the last catch on that voyage. It was mostly a question of destiny that linked you up with the carpenter. But it was your own ambition and drive that had you spend the time to build a skill that would make you more valuable on your next voyage. You learned that valuable skills were the key to signing on for larger shares.

The knowledge you gained on that first voyage allowed you to look for a good ride on the second. Unlike your first effort, you now had enough information to make some use out of your good sense. It paid off. After taking some time ashore to visit your family and to begin to build a collection of carpenter's tools to fill your chests you went to Nantucket where some quality ships and captains were preparing to sail. You letters of recommendation from the captain and some of the junior officers of the Morgan allowed you to sign on to the Pequod for a share-and-a-half. When you negotiated with Captain Mercer for that price he didn't know that he could have bought your services for only a share. The reason you went to see him in the first place was your knowledge that he had already signed on the master carpenter for the voyage. That man, like his mentor from the Morgan was someone who you knew would be able to help you to learn your craft and grow your skills.

Now, two voyages later, you are ready to make your first try at being signed-on as a master ship's carpenter. As you reach the wharf you see that there are signs of activity around each of the three ships. What you don't know is whether each of the three captains has filled this key spot for his upcoming voyage. Your credentials are strong; letters of recommendation from each captain with whom you have sailed; a record of having been aboard some of the best ships sailing and a testimonial from the first mate from your last voyage indicating that you had acted as ship's carpenter for the last three months of that voyage after the master carpenter died of pneumonia. For that contribution you received the four shares for which you had signed and one of his shares for the time you covered his responsibilities. You are ready for today's negotiations.

You knew that there was a chance that there might be other, more experienced carpenters around who might secure the positions. After all, each ship only needed one master carpenter. Should that happen you knew that you could always sign-on as a carpenter's assistant and able bodied seaman -- for fewer shares. There was the equally likely and more attractive possibility that there weren't even three carpenters of your skill in Edgartown. The skilled labor of the whaling industry know that every once in a while you could get fortunate and command a premium for your skills based on scarcity. The captains were keen to this situation when it happened and would even talk among each other to avoid a bidding war. Still, you knew that if the first captain offered you a fair rate with the understanding that his offer expired if you stepped off his ship without accepting it then you were in the driver's seat.

After taking a deep breath you step from the wharf onto the ramp leading up to the first ship in line, Rachel.

"Request permission to come aboard sir."

Brad Westpfahl, Manager, Personal Systems Marketing
IBM Global Government Industry

Would you like to offer some thoughts or add to the dialog? Responses of general interest may be posted below. Send your comment to . IMPORTANT: Make sure the subject line of your message contains: Comment on Guest Speaker 7/98.
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From: (Ralph Resnick) Date: Thu, 6 Aug 1998
Very interesting and thought provoking, however, I could not get the thought of professional athletes and sports franchises out of mind while reading the article. It is obvious that the captain has to recognize what his market can bear and subsequently what his budget is to determine what he can offer to ship's carpenter. The athlete, however, cares not about what the market can bear for the franchise owner captain merely passes the costs onto the public, be it the ticket buying fan or the taxpayer for subsidized stadiums. This overbearing thought of the athlete/franchise owner could be an obstacle in the advancement of this model. I look forward to the follow-on article describing the business practice that was introduced.

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From: Bradley Westpfahl Date: Fri, 7 Aug 1998
Ralph: Thanks for the feedback. I have not explored that dimension of this approach but my first reaction is that the limit to runaway bidding-up of labor costs will be found in the market forces in every industry -- just as it will be some day in professional sports. The whaling industry limits were first established by the open market for labor. Similarly, in my implementation of this model there was a natural limit on the amount of business we could pursue (analogous to a limit on the number of whales that could be hunted) and there were many people whose skills could be substituted for one another on my project teams. That combination kept things in check -- it was better to bid your skills to a project at a reasonable price than to have no project at all. The ultimate limit for whalers was established through a substitute product (petroleum) that made it impossible to for ship owners to earn enough to pay for continuing voyages. (My college economics professors would have told me that New England sailors would have found new employment as Pennsylvania roughnecks, but I am skeptical.) As appalling as the salaries of professional sports figure may seem, I think one can argue that they are being paid fairly based on their value to the consumer market. The market places huge premiums on almost unmeasurable differences in performance among a handful of elite athletes. Some of this is driven by the fact that sports leagues are legal cartels that control supply to keep prices up (I'm not sure where you live, but I don't expect major league baseball to come to my town soon), and some of it based on the fact that consumers have not reached a point where they have stopped paying.

I'll explore your question and see if I can give you a better answer. I very much appreciate your note -- it's the first I've received on this article and Rick's posting of this piece is my first attempt at publishing any of these ideas. THANKS!

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From: (Rick Dove) Date: Fri, 7 Aug 1998
The ship's captain has a fixed 100% of the shares to divide among all of the crew - he can't divvy out more than the 100% and pass it on to anyone. Thus, he must weigh the value to the overall "project" success of paying a master carpenter a premium number of shares which means he'll have to skimp somewhere else in the crew. He has to juggle tradeoffs that place different values on different competencies to the specific and current project at hand.

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From: Bradley Westpfahl Date: Fri, 7 Aug 1998
Rick - Well said!

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