Objective Function

In an efficient firm participants understand the purpose of the organization and share a collective focus on that objective. The objective must be associated with measurable outcomes in order to appraise how well the firm is doing (Cyert, 1988). Schools seem far removed from this standard. Objectives often vary from teacher to teacher, with some placing more emphasis on some subjects than others, and some pushing for rote memorization while others stress thinking skills and problem solving. Schools often set different goals for different groups of students according to their ethnicity, race, and socioeconomic origins, often through tracking or streaming of students (Oakes, 1985).

Organizational Incentives

The principal strategy for inducing employees to pursue the objectives of the firm is to link employee rewards to their performance in contributing to those objectives. In the case of schools there is little evidence of incentives tied to student success (Hanushek et al., 1994). Salary increases tend to be based on seniority and qualifications, not effectiveness. Incentives can be intrinsic (e.g., a sense of accomplishment) or extrinsic (e.g., financial rewards or recognition), individual or collective (Simon, 1991; Holmstrom and Milgrom, 1994). But even if teachers receive some intrinsic satisfaction from their individual accomplishments with students, these do not comprise a link with overall school success or assure articulation of goals from grade to grade and teacher to teacher (Little, 1990).


To succeed, firms need continuous and systematic information on their overall performance to see if they are meeting objectives. They need rapid feedback on challenges, problems, bottlenecks, and impending obstacles as well as changes in market environments, productions, technologies, and prices that may affect them. Comparable information for education is not readily available at the school level. Indeed, schools rarely have accurate information on alternatives or strategies and channels to obtain that information. Even the test score data on students are usually not available until the end of the school year or the beginning of the following one, and this information is highly incomplete and restricted to a narrow set of dimensions (Office of Technology Assessment, 1991). The lack of timely and useful feedback also limits schools' ability to learn through trial and error, as suggested by Murname and Nelson (1984).


Firms that are in situations where their markets, products, technologies, costs, and prices are largely stable do not need to adapt to succeed and survive. They

The National Academies | 500 Fifth St. N.W. | Washington, D.C. 20001
Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement