Deck 11: Organizational Architecture

Question 1

Missy Knowles is in charge of all technical developments at Gumby Polymer Rubber. She makes all the choices concerning product innovations in the company. She finds that she is overworked and that several of her research chemists seem to be spending work hours playing golf. What managerial advice would you provide to Gumby Polymer Rubber? Clearly explain your reasoning.

Answer 1

By centralizing decision rights she is overworked while the scientists are not working! The scientists may have specific information about technical matters and rubber innovation that may be used for the good of GPR if some decisions were decentralized. In addition to changing decision rights Knowles should also revisit the reward and evaluations systems for scientists. They currently are acting as if their compensation is completely unrelated to their productivity (or lack thereof) or even whether they are physically in the lab or on a golf course.

Question 2

Sidney Featherstone of TIP, Inc. is owner and CEO of the company. He has made the company successful through his decision making over the years. This year he decided to retire to Costa Rica. He does not intend to change any aspects of decision making, rewards or performance evaluation in TIP, Inc. What will happen to TIP? Why?

Answer 2

It will perform poorly, at least in the short run. Under Featherstone, decision making was highly centralized. The fact that the company was successful implies that Featherstone also possessed specific knowledge to make value-enhancing decisions. Unfortuately, other managers do not have the necessary specific knowledge nor the decision making skills they will need going forward. They will be calling Featherstone a lot in Costa Rica.

Question 3

If a manager, who does not own the company, is allowed to make decisions for the company, then:

A) the decisions will usually be good ones.
B) the decisions will always be bad ones.
C) a control system of rewards and evaluation must be set up.
D) the manager usually assumes the same attitudes as the owner.

Answer 3

C

Question 4

Which of the following is NOT an external (exogenous) determinant of organizational architecture?

A) Technology
B) Markets
C) Administrative control systems
D) Regulation

Question 5

A household products firm was required to examine its organizational architecture in order to survive. What three aspects of its organization did it look at?

A) Decision rights, rewards, and technology.
B) Government regulation, technology and decision rights.
C) Government regulation, technology and markets.
D) Decision rights, rewards, evaluation systems.

Question 6

Inside the corporation there are _______ systems that motivate individuals and teams to make the most efficient decisions over products sales.

A) automatic administrative
B) automatic market driven
C) no automatic administrative
D) no

Question 7

Fred Powell, CEO of TruLite, is in a quandary. He wants to bring out a new lamp based on fuel technology to the market. He just does not understand the technology involved. But he has several engineers that have spent a lot of time investigating the issue. Powell needs to:

A) decentralize decision making to people with specific knowledge.
B) hire outside experts to question his engineers about fuel cells.
C) just make a decision so he can beat the competition to the market.
D) retire and replace himself with an engineer.

Question 8

How do we solve the incentive problem and design optimal architecture?

Question 9

Competitive markets usually promote the efficient use of resources. This is because:

A) resource owners bear the wealth effects of their decisions.
B) managers always have the proper incentives to make decisions.
C) consumers usually provide the lists of corporate mistakes.
D) markets usually make equitable choices first.

Question 10

FedEx employees use the motto "Absolutely, Positively" to express their commitment to their customers. What should be the attitude of someone who studies economics toward this sort of company ritual?

Question 11

How is the architecture within firms usually set up?

Question 12

Independence Burgers serves fast food at its 300 franchised outlets across the South. The chain has recently found that (a) people are upgrading to restaurants when they eat out, (b) government regulation of beef has been tightened, and (c) modern food preparation technology makes central commissaries more cost effective. What should Independence Burgers be thinking about doing with its organizational architecture?

Question 13

Economic theory would tend to imply that a mature industry without significant technological change will tend to have firms with similar structures, similar reward structures, and similar performance systems. Would the power of the marketplace be important in this trend?

Question 14

Organizational architecture varies from firm to firm. The three big external (exogenous) determinants of a firm's administrative structure are:

A) decision rights, rewards, and technology.
B) government regulation, technology and decision rights.
C) government regulation, technology and markets.
D) decision rights, rewards, evaluation systems.

Question 15

The movement of goods and resources within the corporation is done by:

A) market allocation.
B) administrative decisions.
C) technological importance.
D) government regulation.

Question 16

One of problems with making all the decisions at the top of a business organization is costliness of:

A) specific information.
B) general information.
C) advanced technology.
D) market power.

Question 17

Describe the three aspects of organizational architecture. Which one is the most important?

Question 18

What is corporate culture?

Question 19

Are organizational changes always needed?

Question 20

J.C. Penney found that its headquarters staff did not understand regional fashion trends. Consequently, the company invested in TV communications technology that allowed New York buyers to communicate with local store managers. This communication was set to effectively use:

A) local general knowledge.
B) corporate headquarters knowledge base transfer to local stores.
C) risk taking by local stores.
D) local specific knowledge.

Question 21

Benchmarking is when:

A) a firm compares its performance with its previous performance.
B) a firm sets up a future strategic plan based on its current performance.
C) a firm advises other firms on organization, based on its success.
D) a firm compares other firms in the industry to derive its strategy.

Question 22

If a company picks an organizational architecture that is inappropriate for its marketplace, then:

A) product market competition will often punish the firm.
B) technology will usually rescue the firm from bankruptcy.
C) competition will cause the firm to grow.
D) government regulation will cause the company to fail.

Question 23

One of the following is an important element of corporate culture:

A) establish dress code and political correctness in the work place.
B) establish social rituals and voices within an organization.
C) establish expectations.
D) establish female participation in decisions.

Question 24

The key to understanding changing organizational architecture is that:

A) it is costless.
B) there are only direct costs.
C) there are only indirect costs.
D) there are direct and indirect costs.

Question 25

Slogans, company parties, rituals, role models are all aspects of:

A) Benchmarking
B) Expectations
C) Empowerment
D) Communication

Question 26

One important lesson to keep in mind during benchmarking is:

A) benchmarked firms should be made aware of the said firm's motivation.
B) differences in environments of the benchmarked firms should be taken into account.
C) differences in environments of the benchmarking firm should be taken into account.
D) differences in environments of the benchmarked firms are not important.

Question 27

One mechanism to replace poor management is:

A) fire the low level workers who are most of the time indolent.
B) fire the union bosses who create an environment of mistrust.
C) tender offers and mergers.
D) pay more to the senior management since they deserve it.

Question 28

When Eastman Kodak adopted the Management Annual Performance Plan (MAPP) in 1987, it replaced part of its employees' salaries with bonuses. This system:

A) had to fail.
B) introduced a new reward and performance evaluation system.
C) is required for all companies with rational managers.
D) is an inherent part of a corporate culture.

Question 29

One important lesson to keep in mind during benchmarking is:

A) benchmarking is always a value adding strategy.
B) different architectures are appropriate for different environments.
C) different architectures are basically the same for benchmarking purposes.
D) benchmarking is possible only if all environments match.

Question 30

Corporate takeovers have:

A) increased the wealth of the shareholders by billions.
B) increased the wealth of the shareholders by millions.
C) decreased the wealth of the shareholders by billions.
D) decreased the wealth of the shareholders by millions.

Question 31

For benchmarking, the architecture of other firms should be viewed as:

A) competitive.
B) complements.
C) substitutes.
D) empowerment.

Question 32

If a corporation compares its compensation and performance evaluation systems to it best competitors, it has engaged in:

A) plagiarism.
B) patent infringement.
C) benchmarking.
D) specific knowledge enhancement.

Question 33

If a manager cannot use his management team to deliver a product profitability to the marketplace, a strong solution might be for the Board of Directors:

A) to hire a therapist for the manager.
B) to let the manager have more time to figure things out.
C) to fire the manager and reorganize the company.
D) eliminate incentive bonuses for the current management.

Question 34

The three legs of the organizational stool are reward systems, performance evaluation systems, and:

A) influence costs.
B) decentralization.
C) decision rights.
D) market technology.

Question 35

Role models, company folklore, and rituals are:

A) key components of corporate culture.
B) not part of most companies' corporate culture.
C) not a consideration in an economic analysis of organizational architecture.
D) typical of village economies, but not corporate economies.

Question 36

One of the following is an important element of corporate culture:

A) dress code and political correctness in the work place.
B) enhance social rituals and voices within an organization.
C) enhance communication.
D) enhance female participation in office parties.

Question 37

W. Edward Deming - the quality control expert - has hinted that incentive pay is actually counter-productive. Economic analysis would indicate enhancing corporate culture and incentive rewards plans are:

A) substitutes for each other.
B) complements for each other.
C) the sources of all inefficiencies in modern business.
D) convex functions of the technology principle.

Question 38

Which one of the following occurs rather rarely:

A) firing a few from senior management.
B) firing the lower level management.
C) firing the middle management.
D) firing the CEO.

Question 39

In all corporate communications, Always Round Tire features a factory worker looking at the camera saying "Just keep it rolling!". The reason for this logo is that:

A) the picture is of the CEO's youngest daughter.
B) the logo represents the company as being from the old fashioned manufacturing sector.
C) the logo represents the image that the company wishes to present to itself.
D) the logo indicates that piece rates are the only wages workers receive.