Deck 4: Organizational Architecture

Question 1

Choosing Performance Measures
The president of the Canby Insurance Company has just read an article on the balanced scorecard.A company has a balanced scorecard when there is a set of performance measures that reflect the diverse interests and goals of all the stakeholders (shareholders,customers,employees,and society)of the organization.Presently,Canby Insurance Company has only one performance measure for the top executives:profit.The board of directors claims that profit as the sole performance measure is sufficient.If customers are satisfied and employees are productive,then the company will be profitable.Any other performance measure will detract from the basic goal of making a profit.
Required:
Explain the costs and benefits of only having profit as a performance measure.

Answer 1

Solution to Choosing Performance Measures (15 minutes)
If only one performance measure is going to be used,profit is generally the appropriate measure if the manager can control revenues and costs.Maximizing profit is consistent with the preferences of most shareholders and is also consistent with treating customers,employees,and society well.If customers,employees,and society are not treated well by the company,long-run profit will be harmed.
Short-run profit calculated by historical cost methods,however,may be temporarily improved through neglecting customers,employees or society.Therefore,a balanced scorecard recognizing other stakeholders may be beneficial to the company in the long run.Performance measures recognizing the interests of each stakeholder will motivate managers to treat each party well.

Question 2

Linking Decision Rights and Knowledge
Professional football teams have both a coach and a general manager.The general manager is usually responsible for the general operations of the organization and maintains the decision rights for selecting personnel on the football team.The coach is responsible for the training of the football team and making decisions on game day.Many coaches have been unhappy with their relationship with the general manager and feel they should have more decision rights in choosing the players on the team.Some of the top coaches are now insisting on also being general managers.
What are the advantages and disadvantages of separating the duties of the coach and general manager with respect to selecting members of the football team?

Answer 2

Solution to Linking Decision Rights and Knowledge (15 minutes)
The advantages of allowing the coach to make personnel choices include personal knowledge about the skills of the players.The coach that has been around the league for many years has directly observed the different players.Also,coaches are generally evaluated on the win/loss record of the team.The coach can't completely control whether a team wins when the coach is not able to choose players.The coach also knows with which players he or she is compatible.
On the other hand,coaches generally don't have the perspective of the owners of the organization.It is the responsibility of the general manager to direct the team according to the wishes of the owners.The coach may want the best players,but the owners don't always have the money to pay the high salaries of top players.General managers may also have more of a long-term view about the progress of the team.General managers usually have longer-term employment contracts with the team than coaches.

Question 3

Monitoring Computer Use
Samson Company is an engineering firm.Many of the employees are engineers who are working individually on different projects.Most of the design work takes place on computers.The computers are connected by a network and employees can also "surf" the internet through their desk top computers.
The president is concerned about productivity among his engineers.He has acquired software that allows him to monitor each engineer's computer work.At anytime during the day,the president can observe on her screen exactly what the different engineers are working on.The engineers are quite unhappy with this monitoring process.They feel it is unethical for the president to be able to access what they are working on without their knowledge.
Describe the pros and cons of monitoring through observing the computer work of the engineers.

Answer 3

Solution to Monitoring Computer Use (15 minutes)
The primary reason for observing what the engineers are doing on their computers is control.The president's observations become part of the engineers' performance measure.Even the threat of unobtrusive monitoring is enough to motivate managers not to surf the internet.From the perspective of monitoring,engineers should be pleased with the oversight because they can no longer be blamed for wasting time when they take longer on a project than expected.The president will always know when they are on task.
One problem with this type of monitoring is the cost in time spent by the president.Also,there is the possibility of stifling potentially creative behavior on the part of engineers.The engineers may actually benefit from surfing the internet for some projects.

Question 4

Choosing Performance Measures
Jen and Barry opened an ice cream shop in Eugene.It was a big success,so they decide to open a ice cream shops in many cities including Portland.They hire Dante to manage the shop in Portland.Jen and Barry are considering two different sets of performance measures for Dante.The first set would grade Dante based on the cleanliness of the restaurant and customer service.The second set would use accounting numbers including the profit of the shop in Portland.
What are the advantages and disadvantages of each set of performance measures?