Deck 12: Decision Rights: the Level of Empowerment

Question 1

Decentralized decision making is very controversial in a corporate environment.Central office managers feel like they are losing control of managers in specific plants or regional offices.What are some of the issues that must be reviewed before making the final decision on where to place final decision-making power?

Answer 1

Benefits of decentralization include more efficient use of local knowledge,ability to motivate local managers,and conservation of upper management time.Costs may arise from incentive conflicts,lack of coordination among local decision makers,and less effective use of central information.It may be acceptable to lose some control of local managers as long as a good incentive and evaluation system can be set up for local decision makers.In highly competitive markets,large organizations can respond more quickly to market changes when decision making is decentralized.

Question 2

Incentive problems are usually:

A)larger when the decision rights are placed higher in the organization.
B)larger when the decision rights are placed lower in the organization.
C)smaller when the decision rights are placed lower in the organization.
D)large regardless of where the decision rights are placed.

Answer 2

B

Question 3

Bob is given the right to make all the important decisions in an organization.This is an example of:

A)decentralized decision making.
B)centralized decision making.
C)bundling.
D)a nonstandard practice within a hierarchy.

Answer 3

B

Question 4

Jobs have at least two important dimensions that include:

A)variety of tasks and uncertainty.
B)variety of tasks and decision authority.
C)uncertainty and decision control.
D)decision authority and decision control.

Question 5

Always Round Tire has service stores in many parts of the United States.The stores in Tennessee have petitioned for independent local store managers.The managers claim that since Memphis,Nashville,and Knoxville are hundreds of miles apart,each manager is really in a separate market and needs to deal with local marketing,sales,and pricing issues independently.What issues would need to be considered before giving these local managers the authority that they are requesting?

Question 6

What are influence costs,and why do they inhibit efficient organizational design?

Question 7

One of the benefits of decentralization is that:

A)it lowers the opportunity cost of the time of the higher management.
B)local managers have a strong incentive to maximize a firm's value.
C)there are economies of scale if local managers take pricing decisions.
D)full use can be made of the central manager's knowledge and expertise.

Question 8

What are some of the important questions regarding the assignment of decision rights in an organizational hierarchy?

Question 9

A job in sales-such as a sales representative for an agricultural chemical company-usually represents:

A)many tasks and little sales authority.
B)few tasks and very little sales authority.
C)many tasks and a lot of sales authority.
D)few tasks and a lot of sales authority.

Question 10

Macrosoft is implementing a new research and design shop to integrate PC manufacturers' requirements for new computer software with Macrosoft's operating system.The process of integration usually requires five different kinds of software modification tasks,plus decisions about integrating these modifications.Discuss the problems of designing the new jobs in this research and design shop.

Question 11

Which of the following is not a cost of decentralization of corporate decision making?

A)Incentive problems
B)Coordination costs and failures
C)Less effective use of central information
D)More effective use of local knowledge

Question 12

You are assigned a group project for the class,and you will be graded as a group,and your individual grade will be decided on the group's performance relative to other groups.Would you like this arrangement?

Question 13

Which of the following is not a benefit of decentralization of corporate decision making?

A)Incentive problems
B)More effective use of local knowledge
C)Conservation of the time of senior management
D)Training and motivation for local managers

Question 14

The issue with centralized versus decentralized decision making is that:

A)centralization is always better because one person controls all information.
B)it is difficult to find out whether one is better than the other in the hierarchy.
C)decentralization is always better because many people can split the tasks.
D)it is always easy to find out which is better,but not all may agree.

Question 15

In his seminar on Organizational Economics,Professor Chang always uses study teams for presentation of outside research materials.He has found that three students per team tend to work well.Walking into a new class,he finds that registration has allowed 60 students to sign up.He decides to increase the team size from 3 to 8 students.What problems can he expect to deal with during the semester?

Question 16

Decentralizing decision rights marries authority with local knowledge.This would seem to be a good thing,but a problem that may arise is that:

A)local management may conserve central management's time and effort.
B)local knowledge may allow local managers to tailor prices and services to suit local needs.
C)lack of local incentives may mean that local managers do not work to maximize firm value.
D)local managers may have too strong a corporate identification.

Question 17

Plain Truth Adverting employs KPR,a large accounting firm,to audit its books each year.This involves considerable expense for the advertising firm,since its sales account managers are very independent and each maintains his separate record-keeping systems.Should the CEO at Plain Truth cancel the audit and rely on a brief year-end summary from each sales account manager? Why or why not?

Question 18

What are some of the demerits of decentralization?

Question 19

Which of the following is not a benefit of decentralization?

A)Effective use of local knowledge
B)Possibility to shirk and enjoy credits from free riding
C)Conservation of management time
D)Possibility to increase motivation and productivity

Question 20

Under what conditions will decentralization be beneficial?

Question 21

One of the benefits associated with employee buy-in is that:

A)there are stronger incentives on the part of the employees to implement decisions recommended by themselves.
B)greater use can be made of specific dispersed knowledge.
C)employees do not have to take accountability for a decision.
D)upper-level management can enforce their decisions unilaterally.

Question 22

Decision management is made up of:

A)initiation and ratification of projects.
B)implementation and monitoring of projects.
C)ratification and monitoring of projects.
D)initiation and implementation of projects.

Question 23

If decision makers do not bear the major wealth effects of their decisions,then:

A)the same person in the management structure must hold decision management and control.
B)separate decision makers must hold decision management and decision control.
C)decision management is clearly integrated with decision control.
D)the same managers hold initiation and ratification of decisions.

Question 24

Centralized decision making is most commonly found in:

A)firms that are expanding into other geographical areas.
B)stable industrial environments.
C)emerging economies and industries.
D)highly vertically-integrated firms.

Question 25

Firms grant decision rights to teams of employees for all of the following reasons except to:

A)manage activities.
B)make products.
C)make basic investment decisions.
D)recommend actions.

Question 26

An empowered employee has:

A)explicit rights to initiate but not implement any decision.
B)explicit rights to initiate and implement any decision,subject to the manager's ratification and monitoring.
C)explicit rights to initiate and implement any decision,without the manager's ratification and monitoring.
D)explicit rights to implement but not initiate any decision.

Question 27

Kevin Freeman is the head of a team developing plastic knee replacements.Each member of the team brings specialized knowledge to the innovation process.Without both engineers and materials specialists,the project could not be successful.This is an example of the:

A)benefits of the use of dispersed specific knowledge.
B)costs of employee buy-in.
C)costs of collective-action problems.
D)free-rider problem.

Question 28

In the case of team decision making,the size of the team is optimal when:

A)there are five members in the team.
B)the number of team members exceeds ten.
C)the additional cost of adding a new member equals the incremental benefits.
D)the additional cost of adding a new member is less than the incremental benefits.

Question 29

If D represents the level of decentralization of corporate decision making,and A and C are positive constants,then Benefits = B × D and Costs = A × D + C × D².The optimal level of decentralization occurs where:

A)benefits equal costs.
B)costs are equal to zero.
C)D = BD - AD - CD²
D)D = (B - A)/ 2C

Question 30

An incentive problem arising from decentralization of decision making is that:

A)it leads to communication problems relating to performance evaluation of employees.
B)managers often recruit weaker subordinates and refrain from training them properly.
C)the costs of coordination among local managers is very high.
D)there is less effective use of central information and expertise.

Question 31

If D represents the level of decentralization of corporate decision making,and A and C are positive constants,then Benefits = B × D and Costs = A × D + C × D².The optimal level of decentralization occurs where the:

A)horizontal distance between the benefits and costs curves is greatest.
B)vertical distance between the benefits and costs curves is greatest.
C)sum of the squares of the distance between the benefits and costs curves is minimized.
D)level of benefits is greatest.

Question 32

In addition to other factors,the increased use of technology and the reduced costs of information transfer from local office to corporate headquarters has:

A)significantly increased the need for centralized decision making.
B)only increased the costs of decentralization.
C)reduced the need for middle managers and increased the scope of local decision-making authority.
D)shown that technology has little impact on the centralization issue.

Question 33

The use of hierarchies is common in modern corporations:

A)because of the principle of comparative advantage.
B)because of the principle of separation of decision management and decision control.
C)to avoid collective-action problems.
D)to enhance employee buy-in.

Question 34

Each year,most U.S.companies bring a Certified Public Accountant (CPA)firm to audit their books.This is an example of:

A)a lack of trust between the companies and the managers.
B)separation of decision management and decision control.
C)the impact of influence costs.
D)the benefits of decentralization or outsourcing.

Question 35

Empowerment may be a problem because:

A)managers are never eager to empower anyone else except themselves.
B)managers are usually ambiguous when it comes to empowerment.
C)workers are always eager to empower themselves even if they are unqualified.
D)managers are usually very eager to empower those who are least qualified.

Question 36

The lateral decision-right assignment is carried out on the basis of:

A)the distribution of knowledge and the coordination and control costs.
B)technological advances that allow firms to flatten their management structures.
C)the degree of vertical integration of firms.
D)the strength of the team of the local managers.

Question 37

We say that a firm is vertically integrated if:

A)it develops differentiated products that command price premiums.
B)it makes some of its own inputs.
C)it centralizes all its output decisions but decentralizes its pricing decisions.
D)it decentralizes all its input purchases but centralizes its decisions on output.

Question 38

Decision control is made up of:

A)initiation and ratification of projects.
B)implementation and monitoring of projects.
C)ratification and monitoring of projects.
D)initiation and implementation of projects.

Question 39

Boundary setting refers to:

A)managers requesting permission to ratify every decision made by an empowered worker.
B)managers preratifying certain decisions made by empowered workers within a certain range,while still maintaining supervisory control.
C)employees seeking approval for every decision from managers.
D)workers setting up rules of empowerment that might influence their decision-making authority.

Question 40

Kevin Freeman is the head of a team developing plastic knee replacements.Each member of the team brings specialized knowledge to the innovation process.Kevin noticed that the specialist on bone and artificial materials compatibility is always late to meetings and contributes little.This is an example of the:

A)benefits of the use of dispersed specific knowledge.
B)costs of employee buy-in.
C)costs of collective-action problems.
D)free-rider problem.

Question 41

Which of the following is an example of excessive influencing activities?

A)Informing the manufacturing division of defects in a shipment
B)Estimating the elasticity of demand for your firm's product
C)Cancelling a meeting with a client to play golf with your superiors
D)Taking clients out for dinner

Question 42

If an employee makes a point of meeting his manager every morning to detail the positive outcomes of the work done the previous day,this is an example of:

A)project initiation.
B)influence costs.
C)project monitoring.
D)decentralization of decision making.

Question 43

Kevin Freeman is the head of a team developing plastic knee replacements.His research team has discovered an improved materials -handling procedure that reduces contamination of the product during assembly.The issue for the company after the discovery is:

A)how this specific knowledge can be transferred to the company's whole production process.
B)whether or not this specific knowledge can be implemented in the knee team's process.
C)whether to transfer this new knowledge for general corporate use.
D)to figure out how this discovery can be utilized to reduce influence costs.