Deck 1: Introduction

Question 1

Barings Bank failed because of:

A) the free-rider problem.
B) a lack of internal controls.
C) excessive reliance on benchmarking.
D) downsizing of its matrix organizational architecture.

Answer 1

B

Question 2

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

A) organizational architecture.
B) benchmarking.
C) competitive markets.
D) decision management.

Answer 2

B

Question 3

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

Answer 3

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?

Question 5

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

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?

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?

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:

A) financial incentives should never be used.
B) most employees are very corrupt.
C) incentives can create perverse effects.
D) high-tech firms are unique.

Question 9

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

A) How should the firm price its products?
B) Who are the firm's competitors?
C) How should the firm be internally structured?
D) What mix of inputs - labor and capital - is most efficient?

Question 10

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

Question 11

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

Question 12

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

Question 13

The key to organizational architecture is:

A) assignment of decision rights, reward structure and evaluation systems
B) the methods of rewarding (paying) top management
C) a complicated structure of performance evaluation systems
D) the initial establishment of golden parachutes for top management

Question 14

Economic Darwinism is when:

A) organizational architecture is optimized.
B) competition weeds out ill-designed organizations that fail to adapt.
C) corporate mutations occur, like Enron.
D) market benchmarks are employed.

Question 15

The term Darwinism is important because it indicates:

A) the randomness of existing companies.
B) surviving companies are the best in the absolute sense.
C) the capability to transform as the external environment changes.
D) the existence of a higher intelligence that promotes success.

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:

A) market and organizational efficiency.
B) market and organizational equity.
C) economic benchmarking.
D) defective organizational architecture.

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:

A) will be identical.
B) will depend on the ability of the firm's economists to accurately estimate the supply and demand curve.
C) will depend on whether or not the organization is attuned to market incentives.
D) is dependent on the government regulatory mission.

Question 18

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

A) effectively link decision-making authority with good information.
B) structure moneymaking tools for all employees.
C) eliminate the potential for fraud completely.
D) rely on monitoring and evaluation for all creativity.

Question 19

The example of Enron shows that:

A) selection of people is the key to organizational success or failure.
B) large incentives are the keys to getting people moving in a corporation.
C) business success is possible in a regulatory environment.
D) organizational structure is extremely important in business success.

Question 20

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

A) the appropriate organizational architecture will change too.
B) a good organizational architecture is always able to cope with changes.
C) organizational architecture is able to restore the former market environment.
D) organizations are created by random events, just like markets.

Question 21

Benchmarking may be a problem if:

A) the current architecture is relatively unstable and proposed changes add huge benefits.
B) the current architecture is relatively stable and proposed changes add huge benefits.
C) the current architecture is relatively unstable and proposed changes add little benefits.
D) the current architecture is relatively stable and proposed changes add little benefits.

Question 22

"Subprime mortgages" refer to:

A) interest rates that are over and above the prime rate to risky borrowers.
B) mortgages made to credit worthy borrowers at low interest rates.
C) mortgages made to borrowers who do not usually qualify for loans.
D) mortgage brokers making huge commissions on volume.

Question 23

From Jerome Kerviel's actions in Societe Generale, we realize that in a business organization, managers may turn a blind eye to certain "red flags" from the system if:

A) the managers themselves conduct certain illegal activities.
B) the managers know that at some point these illegal activities will fail.
C) the managers believe the no worker will unnecessarily expose himself or herself.
D) the managers embrace risk taking so long as it benefits the company.

Question 24

The Survival of the Fittest tells us:

A) only the most innovative and adaptive firms are likely to survive competition.
B) only the most innovative and adaptive firms are likely to attract more competition.
C) only the least innovative and adaptive firms are likely to survive competition.
D) only the most innovative and adaptive firms are likely to migrate to other products.

Question 25

According to the text, successful firms tend to set up:

A) organizational architecture that is complex and decisions are "top-down".
B) organizational architecture that is least expensive and decisions are "top-down".
C) organizational architecture that links decision-making with decision rights
D) decision-rights are reserved for the senior management

Question 26

Recent research on CEO behavior tells us that CEOs generally:

A) increase the firm's R&D expenditure so as to boost earnings long before they retire.
B) reduce the firm's R&D expenditure so as to boost earnings long before they retire.
C) reduce the firm's R&D expenditure so as to boost earnings just before they retire.
D) increase the firm's R&D expenditure so as to boost earnings just before they retire.

Question 27

Benchmarking means:

A) blind copying
B) copying from the best so as to become better
C) looking at yourself and telling others what to do
D) looking at yourself and telling yourself you are the greatest

Question 28

Business Week sums up the failure of Enron to:

A) September 11, 2001
B) flawed organizational design
C) too much debt
D) risky projects in India and the oil price hikes

Question 29

Economics provides a theory to explain:

A) how successful business can be started.
B) how managers can cheat and get away with it.
C) how people make choices.
D) how to compete in the market.