Deck 13: Organizational Design

Question 1

An organization chart reveals all the formal and informal alliances between the various levels and departments within the organization.

Answer 1

False

Question 2

Which of the following statements is true about Tyson Foods, Inc.?

A)The company has faced synchronized movements in the prices of its inputs in the recent past.
B)Tyson has been able to keep its chicken prices more or less stable over the last five years because the prices of its major inputs have not fluctuated too much.
C)The company restructured itself to deal with the more complex risks associated with the business today.
D)Tyson assigned responsibilities of risk management to employees familiar with the different commodities it handled in order to establish a self-contained unit.

Answer 2

C

Question 3

The size of an organization and the proportion of its workers in managerial roles is directly proportional.

Answer 3

True

Question 4

All individuals on the same line in an organization chart have similar levels of responsibility and authority in the organization.

Question 5

Centralization of all decision making in an organization is essential to protect the interests of its shareholders.

Question 6

With the financial revolution in the late twentieth century and the resultant increase in the importance and complexity of risk management, it became essential for divisionalized firms to decentralize risk assessment.

Question 7

In which of the following cases will centralization of decision making be appropriate?

A)When different departments in an organization function separately without much interrelation.
B)When information necessary for the decision making process originates from a variety of sources.
C)When the organization expands in size and its activities become more complex.
D)When all the information comes from an external source.

Question 8

Moving decisions downward into functional areas economizes on information and is efficient because a functional department is by definition expert at a subset of the firm's activities.

Question 9

British manufacturers lost their competitive edge in the early twentieth century to industries in the United States and elsewhere in Europe mainly because they failed to reorganize their operations to take full advantage of their inventions.

Question 10

A company X is unlikely to disclose its organizational chart to its competitor company Y to prevent leak of important strategic information about itself.

Question 11

When an organization sets up a self-contained unit, the risk management teams at the divisional levels become redundant.

Question 12

Organizations which have branches in various locations can function efficiently as U-form organizations.

Question 13

Centralizing decisions is efficient if people at lower levels of an organization have knowledge to which those at higher levels can add little.

Question 14

An organization producing a wide range of products is more likely to decentralize its decision making process than a firm operating in a single industry.

Question 15

The efficient functioning of an SCU depends on the accuracy and relevance of the information it receives from the various departments of the organization.

Question 16

To minimize distortion and errors, it is best to ensure the shortest path between the source of the information and its user.

Question 17

The late business historian Alfred Chandler blamed Britain's competitive difficulties in the early twentieth century on:

A)the structure of the firms.
B)the removal of trade barriers.
C)the lack of innovation.
D)inefficient transfer of information within firms.

Question 18

Globalization aids geographic divisionalization in an organization.

Question 19

A firm's ability to process information depends on:

A)its human resources.
B)how the information is transferred within the organization.
C)its organizational design.
D)how the information originates.

Question 20

In case of a disagreement between a regional manager and a business area manager of a matrix organization who have equal decision making authority, the decision should be made at higher levels of the organization.

Question 21

The information to be gathered for a decision depends on which of the following?

A)The current market conditions and on the expected costs and benefits of acquiring the information.
B)The model that underlies a decision and on the expected costs and benefits of acquiring the information.
C)The cost of the information and the current market conditions.
D)The model that underlies a decision and the amount of information that is internally available.

Question 22

Hayle Motors specializes in the production of fire trucks and has production units in five countries.Which of the following is NOT true about Hayle Motors?

A)It is a geographically divisionalized organization.
B)It is divisionalized along product lines.
C)Each of its five production units in the five countries function as stand-alone firms.
D)Activities in each of its five units may be categorized functionally.

Question 23

Tiffany needs to assess the market risk in order to decide when to launch a new product.He decides to delegate the task of risk assessment to Joe who is a competent employee of the firm.Which of the following conclusions can be drawn from this?

A)Joe has the required tools and resources to carry out the order.
B)Joe is above Tiffany in the hierarchy of this firm.
C)The chances that Joe's assessment will be accurate are very high.
D)Tiffany is well equipped to analyze the information he passes on to Joe.

Question 24

When each box in an organization chart contains individuals who specialize in some field, then the activities in the organization are categorized by _____.

A)divisionalization
B)functionalization
C)decentralization
D)de-integration

Question 25

Identify the characteristic of a U-form organization from the following.

A)A divisionally organized firm is often called a U-form firm.
B)The heads of the different branches at different locations report to the headquarters.
C)Information submitted by all departments are used by the headquarters to make all the decisions.
D)There is a substantial degree of inter-dependence between various departments.

Question 26

Which of the following statements is true of members of an organization?

A)They are either principals or subordinates.
B)Agents are closely monitored by principals at all times.
C)Each member generates information for the use of others in the organization.
D)Decision-makers decide on the basis of the information they generate themselves.

Question 27

Categorization of activities in an organization along product or geographic lines is called:

A)globalization.
B)decentralization.
C)functionalization.
D)divisionalization.

Question 28

Axis Group has a publishing house, operates in the sports gear market, and owns a coffee plantation.A board of directors is responsible for the overall performance of the group.Fabrics Inc., on the other hand specializes in women's apparel.Which of the following statements will be true?

A)Decision-making at Axis will be more decentralized in comparison to Fabrics, Inc.
B)Many decisions at Fabrics is likely to be made at lower levels.
C)Individuals at higher levels at Fabrics are less likely to have all of the knowledge that exists at lower levels.
D)Information transfer within Axis Group will be easier as compared to Fabrics, Inc.

Question 29

Orders can lose accuracy:

A)if they are too complicated.
B)as they are transmitted within the organization.
C)in organizations where decision-making is decentralized.
D)unless they are given to the right recipient.

Question 30

Which of the following is a disadvantage of the U-form structure?

A)In case of multiple products sold in different markets, a U-form structure is difficult to maintain.
B)A U-form structure requires a larger staff to evaluate top-level decision making than other organization structures.
C)A U-form structure necessitates a multiple-level decision-making process.
D)The amount of information that is considered for decision-making in a U-form structure is less than other structures.

Question 31

Centralization of decision-making in a firm is a good idea when:

A)the people who produce the information also have decision-making skills.
B)all the information comes from internal sources.
C)the incentives of the decision-makers is not aligned with the firm's share holders.
D)those who have the relevant information are not equipped to analyze it.

Question 32

Joanne can choose to selectively disclose information to her superiors in an attempt to elicit decisions in her favor if:

A)the information is easily available to all.
B)she is the only source of the information concerned.
C)the information is easily verifiable.
D)there are other sources of the same information in the firm.

Question 33

Axis Group has a publishing house, operates in the sports gear market, and owns a coffee plantation.A board of directors is responsible for the overall performance of the group.Identify the correct statement from the following.

A)The board will be responsible for all decision-making process.
B)The board will be in the best position to solve even a minor problem at the coffee plantation.
C)The sports gear firm's risk assessment team will also be responsible for assessing market risk for the group's other functional areas.
D)Decisions for the publishing house are likely to be taken by the individuals who head it, rather than the board of directors heading the entire group.

Question 34

Each of the following can explain why an order could not been carried out as intended, EXCEPT:

A)incompetence.
B)opportunism.
C)impossibility.
D)obedience.

Question 35

An information is beneficial to the decision-maker only when:

A)its marginal cost is zero.
B)its marginal benefits exceeds its marginal cost.
C)the possibility of inaccurate transmission is nullified.
D)its marginal benefit is positive.

Question 36

The method of payment that a principal can use to elicit effort from an agent is called:

A)a contract.
B)an order.
C)an incentive.
D)garbling.

Question 37

The board of directors of Fast Food Inc., have the final say in all decisions made for the firm.Market conditions and recent poor performance has caused some discord among the board members.Which of the following statements is likely to be true?

A)The decisions the board members take may lead to compromises that are not in the interests of the shareholders.
B)Decision-making will be decentralized in this firm.
C)People lower in the hierarchy of this firm will be better equipped to take decisions.
D)The board's incentives are aligned with those of the firm's principals.

Question 38

_____ is the only type of firm where it is possible for a person to hold all of the information that matters for all types of decisions.

A)Corporation
B)A firm where decision-making is centralized
C)Sole proprietorship
D)A firm where there is separation of ownership and management

Question 39

Figure 13-1
Identify the statement which is true of the organization depicted in this figure?
a.There is a strong linkage between the individuals represented in the chart.
b.It is a sole proprietorship firm.
c.The above organization chart depicts a U-form firm.
d.Team production is unimportant in this organization.
Which of the following statements is true about information transfer within an organization?

A)More information is always better.
B)People at higher levels cannot add to the quality of a decision when an employee lower in the order has all the information and is able to take the decision on his/her own.
C)Decision relating to a particular department in an organization usually depends only on the information provided from that department.
D)Optimal amount of information removes the risk of errors in decision-making.

Question 40

_____ transfer the necessary information within a firm and bind the recipients to take certain actions.

A)Contracts
B)Decision-makers
C)Owners of information
D)Orders

Question 41

General Motors was able to gain advantage over Ford in the 1920s primarily because:

A)the latter failed to adapt its product policy and organization structure to meet the demands of the changing market.
B)the former had always been an M-form and better managed organization.
C)the latter charged higher prices for its cars than General Motors.
D)the former was vertically integrated with better control over its input production than Ford.

Question 42

Which of the following statements is true regarding organizations with self-contained units (SCU) for risk-management?

A)The SCU has final authority on risk assessment and uses information from employees with similar expertise at the division-level.
B)It works independently and information flows only between the SCU and headquarters.
C)The organization chart depicts a strong relation between the division-level employees who have information on risk and the SCU.
D)Employees with knowledge of division level-risks are transferred to the SCU.

Question 43

Why do firms reorganize and change their structural forms?

Question 44

One of the disadvantages of an organization which has a matrix structure is that :

A)each individual reports to one boss, causing excess flow of information to one individual.
B)flow of information is difficult when operations are so highly diversified.
C)each individual has two bosses whose interests may not be aligned.
D)there are limits to the information a firm's headquarters can use effectively in making decisions.

Question 45

Figure 13-2

Refer to Figure 13-2.Identify the structure of Z Corp.

A)U-form
B)M-form
C)Mixed organization
D)Matrix organization

Question 46

Which of the following is a function of the headquarters of an M-form organization?

A)To take all decisions relating to the functioning of the various divisions.
B)To measure and compare the performance of the different divisions.
C)To solve the problems faced at lower levels of its different divisions.
D)To ensure that all divisions work harmoniously with each other.

Question 47

What is the principal difference between a U-form and an M-form organization?

Question 48

Identify the main characteristics of a matrix form organization.

Question 49

The _____ keeps decisions at the divisional level that would be sent to headquarters in a _____.

A)matrix organization; M-form firm
B)U-form; M-form firm
C)U-form; matrix organization
D)M-form; U-form firm

Question 50

What is an organization chart?

Question 51

An SCU can function effectively when:

A)the information flows to the SCU through the shortest route from the source.
B)the aims and interests of its members and those of division-level employees coincide.
C)the information flows to the SCU through a longer route, enabling multiple-level checks.
D)the organization has different groups of individuals independently analyzing different types of risk.

Question 52

Can information life-span be a determining factor in deciding which organization structure is superior?

Question 53

When is centralization of decision-making desirable?

Question 54

Figure 13-2

Refer to Figure 13-2.Which of the following statements is true regarding A, B, and C in this structure?

A)They can each function as stand-alone firms.
B)They must have similar substructures.
C)They are different functional departments within the organization.
D)They have no authority to take final decisions.

Question 55

Which of the following is true about the differences between M-form and U-form firms?

A)As M-form firms are more diversified, it is more difficult for the management to acquire and compare information about products and locations than a U-form firm.
B)A U-form firm can better incentivize managers than M-form firms.
C)In an M-form firm the interests of executives in product or geographic divisions can be better aligned with those of shareholders compared to a U-form firm.
D)M-form firms usually operate in fewer markets than U-form firms.

Question 56

Identify the correct statement about relationships depicted in an organization chart.

A)A line that links an individual/division with the same at a lower level depicts informal authority of the former over the latter.
B)Equality on the chart for individuals A and B must mean they both have the same authority in practice.
C)It shows all relations between employees of an organization.
D)A line that links an individual/division with the same at a lower level depicts formal authority of the former over the latter.

Question 57

A matrix form is more likely to be found in organizations which:

A)produce one product and operate in a single market.
B)produce many products and operate in a single market.
C)produce one product and operate in multiple markets.
D)produce many products and operate in multiple markets.

Question 58

How does a firm's organizational structure affect its market performance?

Question 59

Which of the following was a consequence of the financial revolution which drastically changed risk management in the 1970s?

A)Managements created separate categories for handling different types of risks.
B)A group of specialists were created who handled risk assessment for the entire organization and reported only to headquarters.
C)Risk analysis was decentralized by concentrating on risks at the division-level.
D)It became easier to assess market risk with the introduction of various new tools of financial management.

Question 60

What factors determine how centralized or decentralized the decision-making in an organization should be?

Question 61

With reference to the operations of the ABB Group discuss the functioning of matrix form organizations.

Question 62

How does a self-contained unit benefit a firm?

Question 63

Define an M-form organization and discuss its advantages over a U-form organization.

Question 64

Identify a disadvantage of organizational charts.