Deck 11: Organizational Architecture

Question 1

Assume that some firms within the same industry are observed to be multidivisional whereas others are functionally organized. Assume further that all firms are about the same size and have existed for a long period of time in their current organizational structures. Is this observation inconsistent with the "survival of the fittest" concept discussed in class Explain.

Answer 1

The size of the firm has a weak relation with the variety of products it offers in the market. There are firms with a larger size and yet they produce only few products or a single line of products. Similarly, there are firms with relatively smaller size but they produce a variety of goods and services.
In this manner, the concept of survival of fittest is still valid. Accordingly, different organizations face uncertainty, changing working environment, economic policies and other exogenous factors. Those firms that are able to adapt themselves with these changes or collaborate with the adaptive ones, survive and those who are not, succumb to perish.
Now firms with same size but different functionality have been existing since their incorporation. It is, thus, evident that multi-divisional firms can also exist in cohesion with others that are organized functionally. Dimensions other than the size, can also pass the test for survival of the fittest.

Question 2

Evaluate the following argument:
"Management fads make no sense. One day its TQM. The next it is empowerment or business-process reengineering. There is no economic justification for these fads. Management are just like sheep following each other to the slaughter."

Answer 2

Management fads are defined as changes in the business operations or ideology which occurs with time and trend. These changes in the philosophy of businesses occur because these are popular in management circles, and might not reflect an organizational demand. However, the statement that management fads make no sense is incorrect. These changes reflect the dynamics of the environment in which businesses operate and thrive. There are changes in the degree of regulation, phases of business cycles, technological availability, etc. Firms working in this dynamic environment has to adapt itself to survive.
Demand for certain products fades away while for some other, the demand evolves overtime. It would be inappropriate to presume that management fads are not a reflection of changing environment but business process reengineering. These changes ultimately give rise to management fads. Hence, the argument is not valid.

Question 3

Some of the electric generating plants of the Tennessee Valley Authority are powered by coal. Coal is purchased by a separate procurement division and is transferred to the plants for use. Plant managers often complain that the coal is below grade and causes problems with plant maintenance and efficiency. What do you think is causing this problem What changes would you make to help correct this problem

Answer 3

Organizational structure determines the likely incentives received by various internal departments and divisions. These divisions are all profit maximizing, which indicates that their aim contrast with the aim of the organization. This is because each division would like to procure inputs at a lowest price from other divisions and sell the same at a higher price to other divisions.
In this case, the procurement division is purchases coal from the market suppliers, perhaps at a lower price, and then sell the same to other divisions. The procurement division has an incentive to make a purchase at a lowest possible price. Achievement of this aim compromises with the quality of coal because a higher quality coal at a higher price could have been bought.
The incentive problem can be addressed by changing the incentive system altogether. The procurement division can be guided to aim for quality instead of cheaper price. Also, the decision to buy coal can be reassign from the procurement department to the managers of the plant. There should be a monitoring on the decision making process to ensure that quality is not compromised.

Question 4

ANALYZING MANAGERIAL DECISIONS: Tipping in Restaurants
In most restaurants, waiters receive a large portion of their compensation through tips from customers. Generally, the size of the tip is decided by the customer. However, many restaurants require a 15 percent tip for parties of eight or more. Using the concepts from this chapter, discuss (a) why the practice of tipping has emerged as a major method of compensating the wait staff, (b) why the customer typically decides on the amount of the tip, and (c) why restaurants require tips from large parties.

Question 5

Describe the three aspects of organizational architecture

Question 6

What is a major difference between the architectures of markets and firms

Question 7

How might the softer elements of corporate culture help increase productivity in an organization Give some examples of how managers might foster these elements to implement desired change in an organization.

Question 8

Prominent management consultants sometimes argue that decision making in teams is usually more productive than decision making by individuals (important synergies arise when teams operate that are absent when individuals work by themselves). These consultants suggest that most companies have long failed to make proper use of teams. Their advice is that most firms should increase their use of teams significantly. Critique this advice.