Question 1

Barings Bank failed because of:

Accepted Answer

Barings Bank failed due to a lack of internal controls. One trader, Nick Leeson, made unauthorized trades that led to massive losses, which the bank was unable to recover from. This happened because there were inadequate internal controls in place to detect and prevent such activities.

Question 2

The business practice of looking for a firm that has best practices in an area and then emulating those practices is called:

Accepted Answer

Benchmarking involves identifying a company that is performing well in a particular area and studying and adopting their best practices. Organizational architecture refers to the structure of the organization, competitive markets refers to the market conditions, and decision management is the process of making decisions within an organization.

Question 3

What are some of the ways in which risky borrowers cheated on housing loans?

Accepted Answer

Borrowers overstated their income and claimed "liar loans." Fraudulent borrowers would recruit people to apply for more liar loans, provide unreliable home appraisals, purchase homes at the lower prices from the sellers and pocket the difference.

Question 4

What was the main reason for "liar loans" to proliferate?

Accepted Answer

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Question 5

How can good management practices be useful in a global economy?

Accepted Answer

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Question 6

Enron was clearly a company riddled with fraud and excess; its conduct drove it into bankruptcy. The text argues that individual behavior was not at the core of Enron's problems. What were the problems with this corporation from an organizational architecture point of view?

Accepted Answer

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Question 7

DHL, a successful European company, is attempting to overcome various legal problems in order to enter the US market in overnight package delivery. Its two major competitors would be FedEx and UPS. As DHL looks to set up a US subsidiary, it wishes to benchmark its organizational architecture. What should it do?

Accepted Answer

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Question 8

In the textbook, there is an example of a software firm in which the managers provided a financial incentive to get rid of software bugs. The result was that software writers added more bugs into the software. This example shows that:

Accepted Answer

This example illustrates the concept of unintended consequences, where the financial incentive led to unintended, negative outcomes. It does not suggest that financial incentives should never be used or that most employees are corrupt. It is also not specific to high-tech firms, as this phenomenon can occur in any industry.

Question 9

Many economics texts discuss the question "Which markets should a firm enter?" This text focuses on the following question:

Accepted Answer

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Question 10

Explain why the top executives of Societe Generale are more likely to blame than Jerome Kerviel?

Accepted Answer

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Question 11

What are three components of organizational architecture? Which one is most important to the success of the firm?

Accepted Answer

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Question 12

Is there a relationship between a CEO's retirement and the R&D expenses in a firm?

Accepted Answer

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Question 13

The key to organizational architecture is:

Accepted Answer

The key to organizational architecture is the assignment of decision rights, reward structure, and evaluation systems. These elements determine how the organization operates, how decisions are made, and how performance is evaluated and rewarded. The methods of rewarding top management and establishing golden parachutes may be components of the reward structure, but they do not encompass the entire organizational architecture. A complicated structure of performance evaluation systems may be part of the evaluation system element, but again, it is not the entire organizational architecture.

Question 14

Economic Darwinism is when:

Accepted Answer

Economic Darwinism refers to the concept that only the strongest and most adaptable organizations survive and thrive in a competitive market. This means that weaker or poorly designed organizations will be weeded out through market competition. Option A, C, and D do not accurately reflect the concept of economic Darwinism.

Question 15

The term Darwinism is important because it indicates:

Accepted Answer

The term Darwinism refers to the theory of natural selection, which suggests that the fittest individuals or organizations will survive and thrive in their environment. This means that companies must be capable of transforming themselves as the external environment changes in order to survive in the long run. The other options are not relevant to the concept of Darwinism.

Question 16

Fama and Jensen suggest that "the form of organization that survives in an activity is one that delivers the product demanded by customers at the lowest price while covering costs." This is an example of:

Accepted Answer

Fama and Jensen are discussing the concept of market efficiency, as the survival of an organization is dependent on its ability to meet customer demand at the lowest cost possible. They are also referencing organizational efficiency in terms of cost coverage. Market and organizational equity, economic benchmarking, and defective organizational architecture are not discussed in this statement.

Question 17

If the market for a product improves with increases in both the market demand and the price, then the reaction of companies in that market:

Accepted Answer

The reaction of companies in a market that improves with increases in both market demand and price will depend on whether or not the organization is attuned to market incentives. Companies that are attuned to market incentives will react by increasing the supply of the product and raising prices to take advantage of the increased demand. However, companies that are not attuned to market incentives may not react in the same way, potentially losing out on the opportunity to increase profits. The other options (A, B, and D) do not accurately reflect the likely reaction of companies in this situation.

Question 18

The authors argue that successful corporations assign decision rights in ways that:

Accepted Answer

Assigning decision rights effectively means that those making decisions have access to good information, and are able to use it to make informed choices. This link between decision-making authority and good information is essential for successful corporate decision making. The other choices, such as structuring moneymaking tools for all employees, eliminating the potential for fraud, or relying on monitoring and evaluation for all creativity, may all be important in their own way, but they are not the primary factor in effective decision making.

Question 19

The example of Enron shows that:

Accepted Answer

The Enron scandal revealed the importance of organizational structure in business success. Enron had a complex and decentralized structure that allowed for unethical practices to go unnoticed by top management. This ultimately led to the collapse of the company. Thus, the importance of having a sound organizational structure cannot be overstated.

Question 20

If the technology, the nature of competition, or the regulatory environment change in an industry, then:

Accepted Answer

If there is a significant change in the technology, competition, or regulatory environment of an industry, the appropriate organizational architecture must adapt in order to remain competitive and effective. One-size-fits-all approaches will no longer work, and new strategies must be developed to match the new conditions. Therefore, option A is the most appropriate answer.

Quiz 1: Introduction