Deck 4: Organizational Architecture

Question 1

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 1

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 2

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. 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 2

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 3

When activities are performed inside firms, which of the following is true about organizational architecture?

A)Decision initiation is a feature of decision control
B)The party who ratifies a decision must implement it
C)Rewards should be distributed equally to keep everyone happy
D)It is cost-ineffective to ratify all decisions
E)None of the above

Answer 3

D

Question 4

Which of the following is true?

A)Successful firms have lower transaction costs than markets do
B)A legal system that protects ownership rights is critical to the efficient functioning of firms and markets
C)Markets measure and reward performance
D)Markets allocate resources to their highest value use
E)All of the above

Question 5

Choosing Performance Measures
Jen and Barry opened an ice cream shop in Eugene. It was a big success, so they decide to open 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?

Question 6

When activities are performed inside firms, which of the following is true?

A)Centralized firms delegate decision rights to the lowest operational level
B)The best performance measurement systems use only financial data because it is objective
C)Individuals strive to manipulate the performance evaluation system to maximize their own benefits
D)For efficiency, a manager should have both decision rights and decision control
E)None of the above

Question 7

Economic precepts fundamental to agency theory include all of the following, except:

A)all market participants are rational
B)individuals seek to maximize utility
C)people strive to maximize benefits to their community
D)people value status, job title, love, free time
E)none of the above

Question 8

Which of the following is true?

A)People in firms have equal knowledge
B)Employee empowerment increases when firms centralize key functions
C)Decision rights and knowledge must be separated to minimize agency costs
D)Theft by employees is an example of an agency cost
E)None of the above

Question 9

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.
Explain the costs and benefits of only having profit as a performance measure.

Question 10

Which advantage accrues when teams, or firms, are formed?

A)Positive synergies
B)Each participant perceives an advantage to joining
C)Increase in economies of scale
D)Contracting efficiencies
E)All of the above

Question 11

The City of Las Ongeles (COLO) recently installed a complex camera system to photograph vehicles running through a red light. This monitoring system is likely to:

A)be ignored unless there is a punishment for non-compliance
B)increase traffic fine revenue for COLO
C)be hated by the public
D)encourage COLO to reduce the period of the orange light
E)all of the above

Question 12

The university computer lab is having difficulty controlling its costs. Analysis showed that a key issue is the cost of printer supplies (ink, paper, and machine repair). Which strategy is likely to reduce costs the most, if typical student use is 200 copies per month?

A)Plan A: requiring students to pay 12 cents per copy
B)Plan B: charging a fee of $20 for the first 100 copies per month, then 10 cents per copy thereafter
C)Plan C: charging a fee of $10 for the first 50 copies per month, then 15 cents per copy thereafter
D)Plan D: adding a flat lab fee of $30 per academic term
E)All of the above

Question 13

Which of the following is true?

A)A free rider contributes to teamwork but does not receive pay
B)Mitigating the agency problem requires alignment of the interests of principal and agent
C)The horizon problem describes agents who focus on the long-term
D)Agency costs are an advertising expense
E)None of the above

Question 14

Printing Press (PP) is operating close to capacity. The sales department earns commissions of 8% on sales. Setup charges amount to $60 per item, plus variable costs of $1 per copy. When capacity is reached, PP can still meet the order, but incurs overtime charges and other variable overhead of 25 cents per copy. The production manager complains that the sales staff promise delivery within very tight deadlines in order to secure orders, which means that overtime and other variable overhead has to be paid. A recent rush order for 100 engraved wedding invitations was secured at the normal price of $200. Which is true?

A)The present arrangements maximize profits for PP
B)Sales staff would coordinate rush orders with production if the excess charges were to be charged against their sales commission
C)Sales will increase if sales commission arrangements are changed
D)Sales staff are not rewarded for maximizing sales at any cost
E)None of the above