Deck 4: Organizational Architecture

Question 1

It is frequently argued that for empowerment to work, managers must "let go of control" and learn to live with decisions that are made by their subordinates. Evaluate this argument.

Answer 1

Decision rights and rights systems
Every assets or resources used in the organization has certain decision making rights on how they can be used. The management provides this decision making rights to various people in the organization to undertake the smooth functioning of the organization. This also helps in decentralizing the decision making.
In order to undertake empowerment of work it is not required for managers to let go the control. If an employee has decision making and control rights then this would create agency problem. In order to empower the work it is necessary for managers to not completely let go the control and maintain certain kind of control that is retain partial decision making. Employees can still be empowered if they are provided with certain decision making right and not giving them total control.

Question 2

It is often argued that private country clubs tend to have low-quality food operations because the members do not join or frequent their clubs for the food but rather for the golf and fellowship.
(Note: A private country club charges an initiation fee and monthly dues. Members pay for food and drink they consume. The members own the club and frequently pay annual assessments. When members resign or die, some clubs allow the members or their estate to resell the membership, subject to board approval of the new member. Other clubs resell the membership and retain the new initiation fee.)
Critically evaluate the first paragraph.

Answer 2

Organizational Architecture
Organizational architecture consists of three activities measure performance; reward performance and partition decision rights. These activities are performed externally by markets however it would be in the interest of the company to undertake these activities internally and have their own organization structure. Reward system would be based on performance and performance would be based on decision making rights provided.The first paragraph is emphasizing that clubs in order to attract new members concentrate more on golf and additional fellowship benefit rather than providing quality food to its member. Its focus is therefore to attract members and not to focus on restaurant or catering part of the club. They are therefore concentrating on things which would bring in more revenue rather than on side roles like food service.

Question 3

Communities are frequently concerned about whether or not police are vigilant in carrying out their responsibilities. Several communities have experimented with incentive compensation for police. In particular, some cities have paid members of the police force based on the number of arrests that they personally make. Discuss the likely effects of this compensation policy.

Answer 3

Pay performance
Every organization should have a proper and well defined pay performance compensation implemented in the organization. A pay performance should help in improving company's performance and also provide good compensation to employees. Pay performance should meet the objective of the organization and should not lead to disadvantage to the business.
This compensation policy would have many side effects and could lead to disadvantage for society. This is because with this policy of compensation the number of arrests would go up. There is possibility that a person with small suspect would also be arrested in order to receive higher compensation. The quality of arrests would go down that is police would arrest even though arrest is not necessary in the situation. Police would also not be co-operative towards the public as arrest would be their main goal rather than reducing the crimes.

Question 4

One of the main tenets of economic analysis is that people act in their narrow self-interest. Why then do people leave tips in restaurants If a study were to compare the size of tips earned by servers in restaurants on interstate highways with those in restaurants near residential neighborhoods, what would you expect to find Why

Question 5

Faculty members at a leading business school receive a budget to cover research expenditures, software and hardware purchases, travel expenses, photocopying for classroom use, and so forth. The budget is increased $250 for each class taught (independent of the number of students enrolled). For example, a faculty member receives a base budget of $14,000 for this year and teaches three courses-hence, the faculty's total budget is $14,750.
Finance professors teach much larger classes than any other functional area (e.g., accounting) and they tend to have larger course packets per student. Faculty can photocopy their course packets and have their budgets reduced by the photocopying charges. Or the faculty can distribute course materials via the school's network where students can download them and print them on their personal printers.
Required:
a. Which faculty members are more likely to put course packets and lecture notes on their Web pages and which faculty are more likely to photocopy the material and distribute it to their students
b. Is this partitioning of faculty members distributing materials electronically versus making paper copies efficient

Question 6

Employees at White's Department Store are observed engaging in the following behavior: (1) They hide items that are on sale from the customers and (2) they fail to expend appropriate effort in designing merchandise displays. They are also uncooperative with one another. What do you think might be causing this behavior and what might you do to improve the situation

Question 7

Why are drivers for long-haul (cross-country) moving companies (e.g., Allied Van Lines) often franchised, while moving companies that move households within the same city hire drivers as employees Franchised drivers own their own trucks. They are not paid a fixed salary but rather receive the profits from each move after paying the franchiser a fee.

Question 8

Question 9

Prior to the Securities Acts of 1933 and 1934, corporations with publicly traded stock were not required to issue financial statements, yet many voluntarily issued income statements and balance sheets. Discuss the advantages and disadvantages of such voluntary disclosures.

Question 10

Rothwell Inc. is the leader in computer-integrated manufacturing and factory automation products and services. The Rothwell product offering is segmented into 15 product categories, based on product function and primary manufacturing location.
Rothwell's sales division sells all 15 product categories and is composed of 25 district offices located throughout the United States. The company is highly decentralized, with district offices responsible for setting sales price, product mix, and other variables.
District offices are rewarded based on sales. Some large customers have plants in more than one of Rothwell's sales districts. In cases where sales are made to these customers, the district offices participate jointly and sales credits are shared by each district involved.
The sales division compensation plan designed by L. L. Rothwell, founder of the firm, was structured so that the staff would pursue sales in each of the 15 product categories. The selling program has the following features:
• Each sales representative receives a commission based on a percentage of the sales revenue generated.
• Each district (approximately 160 sales reps) is assigned a quota for each product line, defined in terms of dollar sales.
• In addition to commission, sales reps are eligible for an annual bonus. The company calculates individual bonuses by multiplying the number of bonus points earned by the individual target bonus amount. Points are credited at the district level.
• In order for all sales reps in a district to qualify for a bonus, the district must achieve 50 percent of quota in all 15 product groups and 85 percent of quota in at least 13 groups.
• Bonus points are awarded for sales greater than 85 percent of quota.
• Five product groups have been identified as strategic to Rothwell. These "pride-level" products are weighted more heavily in bonus point calculations.
Over the past three years, Rothwell generated exceptionally high sales-and awarded record bonuses. Profits, however, were lackluster. L. L. was befuddled!
Required:
a. Evaluate the compensation situation at Rothwell.
b. Identify the types of behavior the existing system promotes and explain how such behavior may be contributing to the firm's declining profitability. Suggest improvements.

Question 11

Physicians practicing in Eastern university's hospital have the following compensation agreement. Each doctor bills the patient (or Blue Cross Blue Shield) for his or her services. The doctor pays for all direct expenses incurred in the clinic, including nurses, medical malpractice insurance, secretaries, supplies, and equipment. Each doctor has a stated salary target (e.g., $100,000). For patient fees collected over the salary target, less expenses, the doctor retains 30 percent of the additional net fees. For example, if $150,000 is billed and collected from patients and expenses of $40,000 are paid, then the doctor retains $3,000 of the excess net fees [30 percent of ($150,000 - $40,000 - $100,000)] and Eastern University receives $7,000. If $120,000 of fees are collected and $40,000 of expenses are incurred, the physician's net cash flow is $80,000 and Eastern university receives none of the fees.
Required:
Critically evaluate the existing compensation plan and recommend any changes.

Question 12

"It was in Deyang in 1969 that I came to know how China's peasants really lived. Each day started with the production team leader allocating jobs. All the peasants had to work, and they each earned a fixed number of "work points" (gong-fen) for their day's work. The number of work points accumulated was an important element in the distribution at the end of the year. The peasants got food, fuel, and other daily necessities, plus a tiny sum of cash, from the production team. After the harvest, the production team paid part of it over as tax to the state. Then the rest was divided up. First, a basic quantity was meted out equally to every male, and about a quarter less to every female. Children under three received a half portion.
"The remainder of the crop was then distributed according to how many work points each person had earned. Twice a year, the peasants would all assemble to fix the daily work points for each person. No one missed these meetings. In the end, most young and middle-aged men would be allocated 10 points a day, and women 8. One or two whom the whole village acknowledged to be exceptionally strong got an extra point. 'Class enemies' like the former village landlord and his family got a couple of points less than the others, in spite of the fact that they worked no less hard and were usually given the toughest jobs.
"Since there was little variation from individual to individual of the same gender in terms of daily points, the number of work points accumulated depended mainly on how many days one worked, rather than how one worked."
Required:
What predictable behavior do you expect the Chinese agricultural system will generate

Question 13

Mail delivery during the Christmas holidays of 1990 to U.S. troops stationed in Saudi Arabia for Operation Desert Storm was haphazard. So many letters and packages were mailed during the holidays that warehouse space in Germany, which was the intermediate staging area for mail to Saudi Arabia, became full. Letters were often delivered weeks late, while packages were delivered with less delay. Airplanes flying between Germany and the Middle East have both a physical volume capacity and a weight capacity. A cubic foot of letters weighs more than a cubic foot of packages.
Required:
Analyze the mail delivery system and offer a plausible explanation as to why letters were treated differently than packages.

Question 14

International Computer Company (ICC) has annual revenues of $2 billion primarily from selling and leasing large networked workstation systems to businesses and universities. The manufacturing division produces the hardware that is sold or leased by the marketing division. After the expiration of the lease, leased equipment is returned to ICC, where it is either disassembled for parts by the field service organization or sold by the international division. Internal studies have shown that equipment leased for four years is worth 36/3 percent of its original manufacturing cost as parts or sold overseas. About half of ICC's systems are leased and half are sold, but the fraction being leased by ICC is a falling proportion of total sales.
The leasing department is evaluated on profits. Its annual profits are based on the present value of the lease payments from new leases signed during the year, less
1. The unit manufacturing cost of the equipment.
2. Direct selling, shipping, and installation costs.
3. The present value of the service agreement costs.
Each leased piece of equipment will be serviced over its life by ICC's field service organization. The leasing division arranges a service contract for each piece of leased equipment from the field service organization. The field service organization commits to servicing the leased equipment at a fixed annual cost, determined at the time the lease is signed. The leasing department then builds the service cost into the annual lease payment.
The leasing department negotiates the lease terms individually for each customer. In general, the leasing division sets the annual lease terms to recover all three cost components plus a 25 percent markup (before taxes). The 25 percent markup for setting the annual lease payment seemed to work well in the past and provided the firm with a reasonable return on its investment when ICC had dominance in the workstation market niche. However, in recent years new entrants have forced the ICC leasing department to reduce its markup to as low as 10 percent to sign leases. At this small margin, senior management is considering getting out of the lease business and just selling the systems.
The following lease to Gene Science is being priced by the leasing department. A four-year lease of a small network of three workstations is being negotiated. The unit manufacturing cost of the network is $30,000. The service costs, which are payable to the field service department at the beginning of each year, are $2,000 (payable at installation), $3,000, $4,000, and $5,000 (payable at the beginning of each of the next three years, respectively). Selling, shipping, and installation costs are $7,000. The leasing department has an 8 percent cost of capital.
To simplify the analysis, ignore all tax considerations.
Required:
a. Using a 25 percent markup on costs and an 8 percent discount rate, calculate the fixed annual lease payment for the four-year lease to Gene Science.
Comment on some likely reasons why a 25 percent markup on leased equipment is proving more difficult to sustain. Should ICC abandon the lease market What are some alternative courses of action

Question 15

Employee satisfaction is a major performance measure used at American Inter Connect (AI), a large communications firm. All employees receive some bonus compensation. The lower-level employees receive a bonus that averages 20 percent of their base pay whereas senior corporate officers receive bonus pay that averages 80 percent of their base salary. Bonus payments for all employees are linked to their immediate work group's performance on the following criteria: income, revenue growth, customer satisfaction, and employee satisfaction. Managers can have these criteria supplemented with additional specific measures including hiring targets and some other specific objective for each manager such as meeting a new product introduction deadline or a market share target.
Employee satisfaction usually has a weight of between 15 and 20 percent in determining most employees' overall bonus. To measure employee satisfaction, all employees in the group complete a two-page survey each quarter. The survey asks a variety of questions regarding employee satisfaction. One question in particular asks employees to rate how satisfied they are with their job using a seven-point scale (where 7 is very satisfied and 1 is very dissatisfied). The average score on this question for all employees in the group is used to calculate the group's overall employee satisfaction score.
Required:
Describe what behaviors you would expect to observe at AI.

Question 16

Repro Corporation is the leading manufacturer and seller of office equipment. Its most profitable business segment is the production and sale of large copiers. The company is currently organized into two divisions: manufacturing and sales. Manufacturing produces all products; sales is responsible for the distribution of all finished products to the final customers. Each division is evaluated on profits. Market research shows an existing demand for a facilities management service whereby Repro installs its equipment and personnel at a client's site and operates the client's copy center. To meet this demand, Repro is considering a proposal to expand its operations to include a service division responsible for contracting with firms to install Repro's equipment in a copy service agreement. This copy service is named Facilities Management (FM).
A contract for FM includes the leasing of a complete copy center from the service division, including all necessary equipment and personnel. The client provides space for FM on site.
The value offered by the service division is threefold. The service division will be organized so that a base center in each city covered will be responsible for acting as both an independent copy center and a backup to the FMs contracted in the local area. Any FM processing shortfalls due to equipment failure or shop overflows would result in a transfer of copy needs to the center. Additionally, since the equipment used in FM contracts is leased and not purchased, contracting companies are not strapped with showing a return on assets for this equipment (allowing the flexibility of adjusting the lease as company needs vary). Nor are they responsible for equipment maintenance. Finally, the personnel to run the equipment in the FM sites are service division employees, not employees of the client. Thus, no additional headcount is needed by the client. For this complete value-added service, firms are charged based on projected monthly copy volume, with an agreed-upon surcharge for copies processed in excess of the contracted volume.
With the introduction of this new division, Repro would reorganize itself into three divisions: manufacturing, products, and service. The responsibility of selling business equipment (copiers, fax machines, etc.) would be assigned to the products division, and the service division would become responsible for the sale of FM sites (products and services would utilize separate sales forces). Both divisions would buy hardware from manufacturing at similar costs.
Currently, Repro's sales comprise approximately 80 percent repeat-purchase customers (who are either replacing existing equipment with similar equipment or upgrading to new Repro products) and 20 percent new customers. It has been estimated that 30 percent of the current market base would, given the opportunity, choose a Facilities Management contract rather than purchase equipment outright.
Repro's current sales force compensation is a function of a fixed salary plus a commission based on a percentage of sales. The average salesperson's compensation consists of a $25,000 base salary and a 2 percent sales commission. Over the last four years, the average piece of copy equipment from Repro sold for $80,000 and the average salesperson sold $1 million of equipment (adjusted for inflation). If the proposal for a service division is undertaken, this compensation scheme will be applied to both the products and service divisions' sales force.
Required:
a. Discuss the conflict that will result if the service division is introduced.
b. Propose a solution to solve this conflict.

Question 17

A company recently raised the pay of employees by 20 percent. The productivity of the employees, however, remained the same. The CEO of the company was quoted as saying, "It just goes to show that money does not motivate people." Provide a critical evaluation of this statement.

Question 18

Christian Children's Fund, Inc. (CCF), established in 1938, is an international, nonsectarian, nonprofit organization dedicated to assisting children. With program offices around the world, it provides health and educational assistance to more than 4.6 million children and families through over 1,000 projects in 30 countries, including the United States. CCF's programs promote long-term development designed to help break the cycle of poverty by improved access to health care, safe water, immunizations, better nutrition, educational assistance, literacy courses, skills training, and other services specific to improving children's welfare.
Most of CCF's revenues come from individual donors who are linked with a specific child. About 75 percent of the sponsors are in the United States, and in 2003, CCF had total revenues of about $143 million. (See Exhibit 1.)
In 1995 CCF began developing an evaluation system, nicknamed AIMES (Annual Impact Monitoring and Evaluation System), to assess the performance of its programs and whether they are making a positive, measurable difference in children's lives. A working group of national directors, program managers, CCF finance and audit managers, and outside consultants developed a series of metrics that allowed CCF to be more accountable to its sponsors as well as an evaluation tool to continually assess the impact of its programs on children. The working group wanted metrics that (1) captured critical success factors for CCF's projects; (2) focused on a program's impact, not its activities; (3) measured the program's impact on children; and (4) could be measured and tracked.
The following indicators were chosen:
under 5-year old mortality rate
under 5-year old moderate and severe malnutrition rate
Adult literacy
One-to-two-year-old immunizations
Tetanus vaccine-protected live births
Families that correctly know how to manage a case of diarrhea
Families that correctly know how to manage acute respiratory infection
Families that have access to safe water
Families that practice safe sanitation
Children enrolled in a formal or informal educational program
Each family in a community with a CCF program is given a family card that tracks each of the preceding 10 indicators for that family. In 1997, the first year of implementation, AIMES captured the health status of about 1.9 million children in approximately 850 projects in 18 countries. Annual visits by project staff or volunteers update each family's card. The family cards are aggregated at the community level, national level, and then in total for CCF, and provide a reporting system. CCF managers then track trends and compare performance at the community, national, and organizational levels.
It took CCF two years to develop these metrics, test them, and train the staff in all the national offices in how to use the system. AIMES does not prescribe the strategy each community should adopt but rather allows each community to design programs that promote the well-being of children in that community. Program directors can use the AIMES data as a tool to monitor and manage their programs. If child mortality is high, local program directors decide how best to reduce the rate. The 10 AIMES metrics have made project managers more focused and better able to concentrate resources in those areas that make a measurable difference in children's health. CCF uses the information to make program and resource allocation decisions at the community level. The family card has promoted better nutrition via appropriate feeding and child care practices because there is now more direct contact between CCF staff and volunteers and families.
Required:
using this chapter's organizational architecture framework, discuss the strengths and weaknesses of CCF's AIMES project.

Question 19

Some economists (e.g., Hayek) argue that decentralization of economic decisions in the economy leads to efficient resource allocation. What differences exist within the firm that make the link between decentralization and efficiency less clear

Question 20

Background
Woodhaven Service is a small, independent filling station located in the Woodhaven section of Queens. The station has three gasoline pumps and two service bays. The repair facility specializes in automotive maintenance (oil changes, tune-ups, etc.) and minor repairs (mufflers, shock absorbers, etc.). Woodhaven generally refers customers who require major work such as transmission rebuilds and electronics to shops that are better equipped to handle such repairs. Major repairs are done in-house only when both the customer and mechanic agree that this is the best course of action.
During the 20 years that he has owned Woodhaven Service, Harold Mateen's competence and fairness have built a loyal customer base of neighborhood residents. In fact, demand for his services has been more than he can reasonably meet, yet the repair end of his business is not especially profitable. Most of his competitors earn the lion's share of their profits through repairs, but Harold is making almost all of his money by selling gasoline. If he could make more money on repairs, Woodhaven would be the most successful service station in the area. Harold believes that Woodhaven's weakness in repair profitability is due to the inefficiency of his mechanics, who are paid the industry average of $500 per week. While Harold does not think he overpays them, he feels he is not getting his money's worth.
Harold's son, Andrew, is a student at the university, where he has learned the Socratic dictum, "To know the Good is to do the Good." Andrew provided his father with a classic text on employee morality, Dr. Weisbrotten's Work Hard and Follow the Righteous Way. Every morning for two months, Harold, Andrew, and the mechanics devoted one hour to studying this text. Despite many lively and fascinating discussions on the rights and responsibilities of the employee, productivity did not improve one bit. Harold figured he would just have to go out and hire harder- working mechanics.
The failure of the Weisbrotten method did not surprise Lisa, Harold's daughter. She knew that Andrew's methods were bunk. As anyone serious about business knows, the true science of productivity and management of human resources resides in Professor von Drekken's masterful Modifying Organizational Behavior through Employee Commitment. Yes, employee commitment was the answer to everything! Harold followed the scientific methods to the letter. Yet, despite giving out gold stars, blowing up balloons, and wearing a smiley face button, he found Lisa's approach no more successful than Andrew's.
Compensation Plans
Harold thinks that his neighbor Jack Myers, owner of Honest Jack's Pre-Enjoyed Autorama, might be helpful. After all, one does not become as successful as Jack without a lot of practical knowledge. Or maybe it is Jack's great radio jingle that does it. Jack tells Harold,
It's not the jingle, you idiot! It's the way I pay my guys. Your mechanics make $500 a week no matter what. Why should they put out for you Because of those stupid buttons My guys-my guys get paid straight commission and nothing more. They do good by me and I do good by them. Otherwise, let 'em starve.
Look, it's real simple. Pay 'em a percent of the sales for the work they do. If you need to be a nice guy about it, make that percent so that if sales are average, then they make their usual $500. But if sales are better, they get that percent extra. This way they don't get hurt but got real reason to help you out.
This hurt Harold. He really liked those buttons. Still, Jack did have a point. Straight commission, however, seemed a little radical. What if sales were bad for a week That would hurt the mechanics.
Harold figured that it would be better to pay each mechanic a guaranteed $300 a week plus a commission rate that would, given an average volume of business, pay them the extra $200 that would bring their wage back to $500. Under this system, the mechanics would be insulated from a bad week, would not be penalized for an average week, and would still have the incentive to attempt to improve sales. Yes, this seemed more fair.
On the other hand, maybe Jack knows only about the used car business, not about business in general. Harold figured that he should look for an incentive pay method more in line with the way things are done in the auto repair business. Perhaps he should pay his mechanics as he is paid by his customers-by the job. It is standard practice for service stations to charge customers a flat rate for the labor associated with any job. The number of labor hours for which the customer is charged is generally taken from a manual that outlines expected labor times for specific jobs on specific vehicles. The customer pays for these expected hours regardless of how many actual labor hours are expended on the job. Many shops also pay their mechanics by the job. Harold thinks that this approach makes sense because it links the mechanic's pay to the labor charges paid by the customer.
Required:
a. This case presents some popular approaches to alleviating agency costs. Although certain aspects of each of these methods are consistent with the views presented in the text, none of these methods is likely to succeed. Discuss the similarities and differences between the ideas of the chapter and
(i) Dr. Weisbrotten's approach.
(ii) Harold Mateen's idea of hiring "harder-working" mechanics.
b. Discuss the expected general effect on agency costs at Woodhaven Service of the new incentive compensation plans. How might they help Woodhaven Assuming that Harold wants his business to be successful for a long time to come, what major divergent behaviors would be expected under the new compensation proposals How damaging would you expect these new behaviors to be to a business such as Woodhaven Service Also, present a defense of the following propositions:
(i) Harold's plan offers less incentive for divergent behavior than Honest Jack's.
(ii) Limiting a mechanic's pay by placing an upper bound of $750 per week on his or her earnings reduces the incentive for divergent behavior.
c. Suppose Harold owned a large auto repair franchise located in a department store in a popular suburban shopping mall. Suppose also that this department store is a heavily promoted, well-known national chain that is famous for its good values and easy credit. How should Harold's thinking on incentive compensation change What if Harold did not own the franchise but was only the manager of a company-owned outlet
d. In this problem, it is assumed that knowledge and decision rights are linked. The mechanic who services the car decides what services are warranted. Discuss the costs and benefits of this fact for Woodhaven Service and the independently owned chain-store repair shop.
e. Suppose that Woodhaven's problems are not due to agency costs. Briefly describe a likely problem that is apparent from the background description in this problem.

Question 21

Jan Vanderschmidt was the founder of a successful chain of restaurants located throughout Europe. He died unexpectedly last week at the age of 55. Jan was sole owner of the company's common stock and was known for being very authoritarian. He made most of the company's personnel decisions himself. He also made most of the decisions on the menu selection, food suppliers, advertising programs, and so on. Employees throughout the firm are paid fixed salaries and have been heavily monitored by Mr. Vanderschmidt. Jan's son, Joop, spent his youth driving BMWs around the Netherlands and Germany at high speeds. He spent little time working with his dad in the restaurant business. Nevertheless, Joop is highly intelligent and just received his MBA degree from a prestigious school. Joop has decided to follow his father as the chief operating officer of the restaurant chain. Explain how the organization's architecture might optimally change now that Joop has taken over.

Question 22

Sue Koehler manages a revenue center of a large national manufacturer that sells office furniture to local businesses in Detroit. She has decision rights over pricing. Her compensation is a fixed wage of $23,000 per year plus 2 percent of her office's total sales. Critically evaluate the organizational architecture of Koehler's revenue center.

Question 23

"I used to run the company that made Formula 409, the spray cleaner. From modest entrepreneurial beginnings, we'd gone national and shipped the hell out of P G, Colgate, Drackett, and every other giant that raised its head. From the beginning, I'd employed a simple incentive plan based on 'case sales': Every month, every salesman and executive received a bonus check based on how many cases of 409 he'd sold. Even bonuses for the support staff were based on monthly case sales. It was a happy time, with everyone making a lot of money, including me.
"We abandoned our monthly case-sales bonus plan and installed an annual profit-sharing plan, based on personnel evaluations. It didn't take long for the new plan to produce results."
Required:
What do you think happened at this company after it started the annual profit-sharing plan

Question 24

A Wall Street Journal article (December 26, 1996) describes a series of changes at the Pratt Whitney plant in Maine that manufactures parts for jet engines. In 1993 it was about to be closed because of high operating costs and inefficiencies. A new plant manager overhauled operations. He broadened job descriptions so inspectors do 15 percent more work than they did five years ago. A "results-sharing" plan pays hourly employees if the plant exceeds targets such as cost cutting and on-time delivery. Now, everyone is looking to cut costs.
Hourly employees also helped design a new pay scheme that is linked to the amount of training, not seniority, that an employee has. This was after the plant manager drafted 22 factory-floor employees, gave them a conference room, and told them to draft a new pay plan linked to learning.
Shop-floor wages vary between $9 and $19 per hour with the most money going to people running special cost studies or quality projects, tasks previously held by managers.
This text emphasizes the importance of keeping all three legs of the stool in balance. Identify the changes Pratt Whitney made to all three legs of the stool at its Maine plant.

Question 25

A textbook on organization theory says:
Drawing upon the writings of Maslow, McGregor presented his Theory X-TheoryY dichotomy to describe two differing conceptions of human behavior. Theory X assumptions held that people are inherently lazy, they dislike work, and that they will avoid it whenever possible. Leaders who act on Theory X premises are prone to controlling their subordinates through coercion, punishment, and the use of financial rewards; the use of external controls is necessary, as most human beings are thought to be incapable of self-direction and assuming responsibility. In contrast, Theory Y is based on the assumption that work can be enjoyable and that people will work hard and assume responsibility if they are given the opportunity to achieve personal goals at the same time.
Using the framework presented in the text, critically analyze Theory X-Theory Y.

Question 26

Employee bonuses at American Interconnect (AI), a large communications firm, depend on meeting a number of targets, one of which is a revenue target. Some bonus is awarded to the group if it meets or exceeds its target revenue for the year. The bonus is also tied to meeting targets for earnings, employee satisfaction, hiring goals, and other specific objectives tailored to the group or manager.
AI has several product development groups within the firm. Each is assigned the task of developing new products for specific divisions within the firm. Product developers, primarily engineers and marketing people, are assigned to a new product development team to develop a specific new product. Afterward, they are assigned to new development teams for a different division or are reassigned back to their former departments. Sometimes they become product managers for the new product. Product development teams take roughly 18 months to develop and design the product. For example, Network Solutions is one group of products AI sells. The employees in the product development group for Network Solutions receive part of their bonus based on whether Network Solutions achieves its revenue target for that year.
It typically takes AI three years from the time a product development team is formed until the product reaches the market. Once a new product idea is identified and researched, a prototype must be built and tested. Finally it is introduced. Another 18 months is required for approval, manufacturing design, further testing, and marketing. These functions are performed after the product development team has been reassigned.
Required:
Analyze the incentives created by basing a portion of each current product developer's bonus on revenues for products now being sold.