Service Organizations: Customer Contact and Incentives of Knowledge Managers

We analyze the interdependence of human resource management and knowledge management. The service organization is modeled as a queueing network. The optimal number of workers in each division, the amount of customer contact and the wage for each manager is determined. We combine three features within the model. First, each manager may engage in customer contact. We show that although the fraction of time a worker is busy is increasing in rank of the manager, the customer task acceptance rate is not necessarily monotonic. Second, knowledge management is explicitly taken into account. Knowledge acquired by workers depends on the effort of the manager. Third, since this effort is not easily measurable, a moral hazard problem might occur. We discuss a bonus contract under different performance evaluation schemes. If queueing costs increase we find it might be optimal to increase the knowledge and to decrease the number of workers. This implies that decisions are more decentralized. In a numerical example we analyze the elimination of middle management. A attened firm may respond more quickly by pushing decisions downwards. However, we find that the mean response time is higher and the senior manager is more involved in internal tasks.