Deck 11: Organizational Architecture

Question 1

How do we solve the incentive problem and design optimal architecture?

Answer 1

In the US economy,the price system solves information and incentive problems by establishing private property rights.Further,the market system also rewards agents based on their performance.Most importantly,incentive problems and efficient design are solved with the help of the invisible hand.

Question 2

Are organizational changes always needed?

Answer 2

No.Any organizational change should be undertaken only when the expected incremental benefits exceed the expected incremental costs.There are direct and indirect costs of organization.Frequent restructuring causes uncertainty about responsibility and the organization's mission shifts to short-run gains rather than long-term viability.

Question 3

A disadvantage associated with decentralizing the decision-making process in an organization is that:

A)the CEO is likely to make suboptimal decisions.
B)the cost of transferring information between the CEO and other decision makers can be high.
C)it makes the three legs of the architectural stool of an organization inconsistent with each other.
D)it prevents firms from benchmarking other firms to determine value-enhancing policies.

Answer 3

B

Question 4

A significant feature of the price system in a market economy is that the architecture:

A)is created spontaneously.
B)is created by the government.
C)promotes skewed distribution of wealth.
D)promotes a system of controls on the employees of an organization.

Question 5

Competitive markets usually promote the efficient use of resources.This is because:

A)resource owners bear the wealth effects of their decisions.
B)managers always have the proper incentives to make decisions.
C)consumers price makers
D)markets usually make equitable choices first.

Question 6

J.C.Penney found that its headquarters staff did not understand regional fashion trends.Consequently,the company invested in TV communications technology that allowed New York buyers to communicate with local store managers.This communication was meant to:

A)effectively use local general knowledge.
B)encourage knowledge transfer from corporate headquarters to local stores.
C)encourage risk taking by local stores.
D)effectively use local specific knowledge.

Question 7

If a manager who does not own a company is allowed to make decisions for the company,then:

A)the decisions will usually be effective.
B)inappropriate decisions will be taken.
C)a control system of rewards and evaluation must be set up.
D)the manager usually assumes the same position as the owner.

Question 8

Describe the three aspects of organizational architecture of a firm.Which is the most important aspect?

Question 9

The movement of goods and resources within a corporation is done on the basis of:

A)market allocation.
B)administrative decisions.
C)technological innovation.
D)government regulation.

Question 10

Independence Burgers serves fast food at its 300 franchised outlets across the South.The chain has recently found that (a)people are upgrading to restaurants when they eat out,(b)government regulation of beef has been tightened,and (c)modern food preparation technology makes central commissaries more cost effective.What should Independence Burgers do about its organizational architecture?

Question 11

FedEx employees use the motto "Absolutely,Positively" to express their commitment to their customers.What should be the attitude of someone who studies economics toward this sort of company ritual?

Question 12

Economic theory implies that a mature industry without any significant technological change will tend to have firms with similar architectural structures,similar reward structures,and similar performance systems.Would the power of the marketplace be important in this case?

Question 13

Fred Powell,the CEO of TruLite,is in a quandary.He wants to bring a new lamp to the market that is based on fuel technology.He just does not understand the technology involved,but he has several engineers who have spent a lot of time investigating the issue.Powell needs to:

A)decentralize decision making to people with specific knowledge.
B)hire outside experts to question his engineers about fuel cells.
C)just make a decision so he can beat the competition in the market.
D)retire and replace himself with an engineer.

Question 14

A household-products manufacturing firm was required to examine its organizational architecture in order to survive in the market.The three aspects of its organization that it looked into are

A)decision rights,rewards,and technology.
B)government regulation,technology,and decision rights.
C)government regulation,technology,and markets.
D)decision rights,rewards,and evaluation systems.

Question 15

What is corporate culture?

Question 16

Missy Knowles is in charge of all technical developments at Gumby Polymer Rubber.She makes all the choices concerning product innovations in the company.She finds that she is overworked and that several of her research chemists seem to be spending work hours playing golf.What managerial advice would you provide to Gumby Polymer Rubber (GPR)? Clearly explain your reasoning.

Question 17

How is the architecture within firms usually designed?

Question 18

Sidney Featherstone of TIP Inc.is the owner and CEO of the company.He has made the company successful through his decision making over the years.This year he decided to retire and move to Costa Rica.He does not intend to change any aspects of decision making,rewards,or performance evaluation in TIP Inc.What is likely to happen to TIP? Why?

Question 19

One of the problems with making all the decisions at the top of a business organization is the costliness of:

A)specific information.
B)general information.
C)advanced technology.
D)market power.

Question 20

Within corporations,there are _______ systems that motivate individuals and teams to make the most efficient decisions on products sales.

A)automatic administrative
B)automatic market-driven
C)no automatic administrative
D)no automatic market-driven

Question 21

If a manager cannot use his management team to deliver a product profitability to the marketplace,a solution for the board of directors might be to:

A)shut down the operations of the company.
B)let the manager have more time to figure things out.
C)fire the manager and reorganize the company.
D)increase bonuses for the current management.

Question 22

Organizational architecture varies from firm to firm.The three important external determinants of a firm's administrative structure are:

A)decision rights,rewards,and technology.
B)government regulation,technology,and decision rights.
C)government regulation,technology,and markets.
D)decision rights,rewards,and evaluation systems.

Question 23

Which of the following is not an external determinant of organizational architecture?

A)Technology
B)Markets
C)Administrative control systems
D)Government regulations

Question 24

Role models,company folklore,and rituals are:

A)the key components of corporate culture.
B)not parts of most companies' corporate culture.
C)not considered in an economic analysis of organizational architecture.
D)the key components of a barter economy.

Question 25

In all its corporate communications,Always Round Tire features a factory worker looking at the camera saying,"Just keep it rolling!" The reason for this logo is that it:

A)indicates the expectations of the workers.
B)represents the company's organizational architecture.
C)represents the image that the company wishes to present to its workers.
D)indicates that piece rates are the only wages the workers receive.

Question 26

The three legs of the organizational stool are reward systems,performance-evaluation systems,and:

A)sunk costs.
B)communication.
C)decision rights.
D)market structure.

Question 27

______ is an important element of corporate culture.

A)Establishing dress code and political correctness in the work place
B)Ensuring proper coordination among employees
C)Establishing expectations of employees
D)Establishing female participation in decisions-making process

Question 28

Which of the following is a rare occurrence in case of poor performance by a company?

A)Firing a few managers from the senior management
B)Firing the lower level management
C)Firing the middle management
D)Firing the CEO

Question 29

The key to understanding changing organizational architecture is that:

A)it is costless.
B)there are only direct costs.
C)there are only indirect costs.
D)there are direct and indirect costs.

Question 30

If a corporation compares its compensation and performance-evaluation systems to its competitors,it has engaged in:

A)plagiarism.
B)patent infringement.
C)benchmarking.
D)specific knowledge enhancement.

Question 31

Corporate takeovers have:

A)increased the wealth of shareholders by billions of dollars.
B)led to increased competition in the product market.
C)decreased the wealth of shareholders by billions of dollars.
D)led to stronger corporate cultures.

Question 32

One of the mechanisms to replace poor management is to:

A)fire the low-level workers who are inefficient.
B)fire the union leaders who create an environment of mistrust.
C)tender offers and mergers.
D)pay more to the senior management.

Question 33

Benchmarking occurs when a firm:

A)compares its performance with its previous performance.
B)sets up strategic plans for the future based on its current performance.
C)advises other firms on organization,based on its success.
D)compares the strategies of other firms in the industry to derive its strategy.

Question 34

Economic analysis on empowerment has shown that most firms have:

A)increased profits by delegating decision-making rights to lower-level employees.
B)used benchmarking to arrive at erroneous conclusions.
C)failed to delegate decision-making rights to lower-level employees.
D)failed to use corporate culture to enhance communication and build employee expectations.

Question 35

The components of organizational architecture are ______.

A)interdependent on each other
B)independent of each other
C)likely to lead to incentive problems
D)likely to promote corporate culture

Question 36

Slogans,company parties,rituals,and role models are all aspects of:

A)benchmarking.
B)rational expectations.
C)empowerment.
D)enhancing communication.

Question 37

If a company picks an organizational architecture that is inappropriate for its marketplace,then:

A)the company is unlikely to survive market competition.
B)technology is likely to rescue the company from bankruptcy.
C)competition is likely to help the company to grow.
D)government regulation is likely to cause the company to fail.

Question 38

Which of the following is an important element of corporate culture?

A)Dress code and political correctness in the work place
B)Proper coordination among employees
C)Effective communication
D)Corporate takeovers to decrease the wealth of shareholders

Question 39

W.Edwards Deming,the quality expert,has hinted that incentive pay is actually counterproductive.Economic analysis indicates that enhancing corporate culture and incentive rewards plans are:

A)substitutes for each other.
B)complements for each other.
C)the sources of all inefficiencies in modern businesses.
D)convex functions of the technology principle.

Question 40

Frequent alterations in organizational architecture are likely to:

A)boost long-run investment efforts.
B)affect all the employees of a company positively.
C)increase the incentives of employees to learn more about their current job assignments.
D)promote actions that focus on short-run payoffs.

Question 41

One important lesson to keep in mind during benchmarking is that:

A)benchmarking is always a value adding strategy.
B)different architectures are appropriate for different environments.
C)differences in organizational structures do not matter.
D)benchmarking is possible only if all environments for the firms under consideration match.

Question 42

For benchmarking,the architecture of other firms should be viewed as:

A)competitive.
B)complements.
C)substitutes.
D)empowerment.

Question 43

Which of the following is an important lesson to keep in mind during benchmarking?

A)Benchmarked firms should be made aware of the said firm's motivation.
B)Differences in environments of the benchmarked firms should be taken into account.
C)Differences in the strength and activities of the labor unions should be taken into account.
D)Differences in environments of the benchmarked firms are not important.