Managerial Economics and

Organizational Architecture 6th Edition

Brickley Solutions Manual
Visit to download the full and correct content document: https://testbankdeal.com/dow
nload/managerial-economics-and-organizational-architecture-6th-edition-brickley-solu
tions-manual/
Chapter 11 - Organizational Architecture

CHAPTER 11

ORGANIZATIONAL ARCHITECTURE

CHAPTER SUMMARY

This chapter introduces the concept of organizational architecture. It begins by

discussing the dual economic problems of:

• linking decision rights with knowledge, and

• motivating agents to make productive decisions based on their information.

Markets solve this problem though a system of alienable private property rights. Within
firms, the problem has to be addressed by management through the design of the
organizational architecture. The three components of organizational architecture
(decision-right assignment, performance-evaluation system, and reward system) are like
three legs of a stool. They are complements and must be considered together. They also
complement the less formal aspects of a firm’s “corporate culture.” If the management
does not adopt a productive architecture the firm will suffer. Architecture is an important
managerial tool that can be used at all levels in the organization.

CHAPTER OUTLINE

THE FUNDAMENTAL PROBLEM

Architecture of Markets
Academic Applications—Spontaneous Creation of Markets: Evidence from
Prisoner-of-War Camps
Architecture within Firms
Decision Rights
Controls
Managerial Applications—Organizational Architecture at Century 21
Tradeoffs
Analyzing Managerial Decisions—Tipping in Restaurants
ARCHITECTURAL DETERMINANTS
Managerial Applications—Big-Bang Disrupters Nuke Corporate Strategies
Managerial Applications—New Technology Provides Better Controls
Changing Architecture
Managerial Application—Changing Organizational Architecture Requires
Careful Analysis
Historical Application—Changing Organizations Too Frequently: Not a
New Phenomenon

11-1

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 11 - Organizational Architecture

Interdependencies within the Organization

CORPORATE CULTURE
Managerial Applications—Netflix Corporate Culture Goes Viral
Corporate Culture and Communication
Corporate Culture and Employee Expectations
A System of Complements
Managerial Applications—Firms Use the Clout of Their Well-Connected
Employees
Academic Applications—The Value of Corporate Culture
Managerial Applications—Scandal-Plagued European Banks Seek to Change
Their Corporate Culture
WHEN MANAGEMENT CHOOSES AN INAPPROPRIATE ARCHITECTURE
Firing the Manager
Market for Corporate Control
Product Market Competition
MANAGERIAL IMPLICATIONS
Academic Applications—Marmots and Grizzly Bears
Evaluating Management Advice
Benchmarking
Managerial Applications—Benchmarking the Lincoln Electric Company
SUMMARY

LEARNING OBJECTIVES
1. Describe the fundamental problem facing all organizations and how the
architecture of markets differ from the architecture of firms.
2. List the three components of a firm’s organizational architecture.
3. Explain how a firm’s business environment and strategy help to determine its
optimal organizational architecture.
4. Describe how the three components of an organization’s architecture are
interrelated and why it is important to design them in a balanced (complementary)
fashion.
5. Describe the role of corporate culture and its connection to organizational
architecture.
6. Understand, why, how, and when firms change their organizational architecture.

TEACHING THE CHAPTER

One of the key points in this chapter is that the three legs of the “organizational
architecture” stool must be balanced. This chapter builds on the foundation presented in
chapter 10, which highlighted the way decisions are made by firms and why it is
important that the actors within the firm have interests that are aligned with the interests
of the firm. This chapter is different in that the focus is now on explaining the factors
that affect whether the three legs are balanced for a particular firm, which are highlighted
in figure 11.1. This figure should provide the foundation that students need to analyze
cases and students should be encouraged to refer to this table when answering the
questions in the chapter. If students struggle with using figure 11.1 on their own, they
11-2

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 11 - Organizational Architecture

can refer to the Managerial Implications section of this chapter for a set of questions
that will aid them in their analysis. This chapter has numerous applications that can be
used to illustrate the key points. This chapter focuses on concepts and not quantitative
analysis so students should be able to offer good discussion about these topics without
much lecture. This chapter serves as an introduction to these concepts which are covered
more fully in the next six chapters.

There is one Analyzing Managerial Decisions scenarios in this chapter. “Tipping in

Restaurants”, asks students to consider why waiters’ compensation is heavily dependent
on tips. Students are also asked to consider why restaurants require a certain percentage
tip for large parties. Students should consider the material from the previous chapter in
formulating their answers. (See the Solutions Manual for the answer to the Analyzing
Managerial Decisions problem).

The textbook authors recommend an additional case, Nordstrom: Dissension in the

Ranks? (A) (Harvard Business School Case #9-191-002), and have provided the
following detailed description of how this case can be used in class.

At the time of the case Nordstrom has experienced a long history of success. Its strategy
and architecture appear to have worked well. In 1989, however, the company was
engaged in a dispute with a labor union and several related lawsuits over its performance
evaluation and reward systems. The relevant question is: Should Nordstrom make
changes in its architecture? Figure 11.1 can be used to organize the discussion. A careful
analysis suggests that, while Nordstrom had been successful, their system motivated
violations of the Fair Labor Standards Act (the architecture did not fit the regulation box
in Figure 11.1). These violations were exposing the firm to millions of dollars of potential
liability that the labor union had private incentives to pursue (the union would like to stop
Nordstrom from placing competitive pressures on other firms in the industry to mimic
their commission oriented-system). Nordstrom should do something to address the issue.
Yet, they must be careful not to make such radical changes as to destroy what made them
great.

This case can be updated by talking about what has subsequently happened to Nordstrom.
The employees in Washington ultimately voted to withdraw from the union — suggesting
that most employees were not unhappy with the system. Nordstrom did make some minor
changes in its system to help assure compliance with the law. However, the basic system
remained intact. During 1999, Nordstrom had relatively bad stock price performance.
They appeared to have lost their image as a trend-setter. Since 2000, however, Nordstrom
has on average roughly tracked the S&P 500 (through April 2003). Starting in 2000 the
company made some substantial changes in their management and organizational
architecture. For example, Nordstrom’s centralized decisions on overall purchasing,
advertising, etc. However, they have maintained local execution and selection. These
developments are well summarized in “Fashion Victim,” Barron’s (April 3, 2000, pp. 20-
22). This discussion can be tied back to Chapter 8 and the difficulty of maintaining an
advantage in a competitive marketplace.

11-3

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 11 - Organizational Architecture

REVIEW QUESTIONS

11–1. Describe the three aspects of organizational architecture?

First is the assignment of decision rights; this assignment indicates who has
authority to make particular decisions within the organization. Second is the
performance-evaluation system; this system specifies the criteria that will be
used to judge the performance of agents within the organization (for
example, employees). Third is the reward system; this system specifies how
compensation (and other rewards and punishments) will be distributed
among agents within the firm.

11–2. What is a major difference between the architectures of markets and firms?

The architecture in markets is created spontaneously with little conscious

thought or human direction. Through market transactions, property rights
are reassigned so that decision making and specific knowledge are linked.
Private property rights provide strong incentives for productive actions —
they create powerful performance-evaluation and reward systems. Within
firms, the architecture is created by management.

11–3. How might the softer elements of corporate culture help increase productivity in
an organization? Give some examples of how managers might foster these
elements to implement desired change in an organization.

Softer elements in a firm’s corporate culture include such things as slogans,

role models, corporate stories, and social gatherings. These features can be
important in communicating the objectives of the firm to employees and
other stakeholders. They can also serve to convey to employees the
architecture of the firm (what decision rights employees have, what will
receive positive evaluations, and rewards). Also, these features can be used to
enhance employee expectations that other employees will behave in
particular ways. As we show in the appendix to chapter 9, sometimes these
expectations are important in fostering cooperation among employees. It is
easy to give examples of how managers might use the softer elements to meet
these objectives. For example, consider the case of Mary Kay Cosmetics,
highlighted in a box in Chapter 11.

11–4. Prominent management consultants sometimes argue that decision making in

teams is usually more productive than decision making by individuals (important
synergies arise when teams operate that are absent when individuals work by
themselves). These consultants suggest that most companies have long failed to
11-4

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 11 - Organizational Architecture

make proper use of teams. Their advice is that most firms should increase their
use of teams significantly. Critique this advice.

Managers should be skeptical of this type of advice. If firms have not used
teams and continued to survive over a long time period, this suggests that the
use of teams is not always productive. The principle of economic Darwinism
suggests that competition long ago would have driven firms to use more
teams if teams were always more productive. After all, teams are not a new
idea. It is possible that the environment has changed in ways that make the
use of teams more valuable for certain firms. However, this does not mean
that all firms should use teams (it depends on the environment in which they
operate). In the next chapter, we discuss the economics of teams in more
detail.

11-5. Assume that some firms within the same industry are observed to be
multidivisional whereas others are functionally organized. Assume further that all
firms are about the same size and have existed for a long period of time in their
current organizational structures. Is this observation inconsistent with the
“survival of the fittest” concept discussed in class? Explain.

No. Firms in the same industry can vary on dimensions other than size. For
example, one firm might produce many products and optimally organize as a
multi-divisional firm, while another firm might concentrate on fewer
products and organize as functionally.

11–6. Evaluate the following argument:

“Management fads make no sense. One day its TQM. The next it is
empowerment or business-process reengineering. There is no economic
justification for these fads. Management are just like sheep following each other
to the slaughter.”

One can argue that this statement is not true. Changes in the business
environment (technology, markets, and regulation) can promote a common
demand for organizational changes among firms in a given environment.
Consulting firms (and others) have incentives to provide help in making
these changes and also to label them in a proprietary manner (e.g., EVA).
The new products disappear as environments continue to change, as their
usefulness wears out, as new products develop, etc. The pattern can produce
what appears to be management fads. However, these “fads” can ultimately
help to increase value if they are implemented correctly by the correct set of
firms.

11-5

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 11 - Organizational Architecture

11–7. Some of the electric generating plants of the Tennessee Valley Authority are
powered by coal. Coal is purchased by a separate procurement division and is
transferred to the plants for use. Plant managers often complain that the coal is
below grade and causes problems with plant maintenance and efficiency. What
do you think is causing this problem? What changes would you make to help
correct this problem?

There is likely to be a problem with organizational architecture. The

procurement people are likely to be incented to purchase coal at a low price.
This motivates them to be less concerned about quality. Possible solutions
involve changing the incentive system of the procurement division to focus
more on quality. Alternatively, TVA might reassign decision rights to
purchase coal to plant managers. (This might lose certain economies of scale
in purchasing.) In either case, they must also worry about the other two legs
of the stool. For example, if the procurement people are evaluated on quality,
someone must be assigned the decision right to monitor this quality.
Alternatively, if decision rights are changed (for example by moving the
responsibility to purchase coal), it is likely that incentives will need to be
changed as well.

11-6

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Another random document with
no related content on Scribd:
 91.

My FIRST, if you do, will increase;

My SECOND will keep you from Heaven,
My WHOLE—such is human caprice—
Is seldomer taken than given.

Answer

92.
When may a man reasonably complain of his coffee?
Answer

93.
Why does a duck put her head under water?
Answer

94.
Why does she take it out again?
Answer

95.
 In what terms does Shakespeare allude to the muddiness of the
river on which Liverpool lies?
Answer

96.

If the B mt put: If the B. putting:

So said one, but another replied: How can I put: when there is
such a-der?
Answer

97.
Why is a man who never bets, as bad as one who bets
habitually?
Answer

98.
When is a bonnet not a bonnet?
Answer

99.

Twice ten are six of us;

Six are but three:
 Nine are but four of us;
What can we be?
Would you know more of us?
I’ll tell you more;
Seven are five of us,
Five are but four!

Answer

100.

As I was going to St. Ives’

I met seven wives;
Each wife had seven sacks,
Each sack had seven cats,
Each cat had seven kits,—
Kits, cats, sacks and wives,
How many were going to St. Ives’?

Answer

101.
Helen, after sitting an hour, dressed for a walk, at length set out
alone, leaving the following laconic note for the friend who, she had
expected, would accompany her:
2 8.
2
Answer

102.
Come and commiserate one who was blind,
Helpless and desolate, void of a mind;
Guileless, deceiving; though unbelieving,
Free from all sin.
By mortals adored, still I ignored
The world I was in.
King Ptolemy’s, Cæsar’s, and Tiglath Pilezer’s
Birth days are shown;
Wise men, astrologers, all are acknowledgers,
Mine is unknown.
I never had father or mother
Alive at my birth.
Lodged in a palace, taunted by malice,
I did not inherit by lineage or merit,
A spot on the earth.
Nursed among pagans, no one baptized me,
Sponsor I had, who ne’er catechised me;
She gave me the name to her heart that was dearest;
She gave me the place to her bosom was nearest;
But one look of kindness she cast on me never,
Nor word of my blindness I heard from her ever.
Encompassed by strangers, naught could alarm me;
I saved, I destroyed, I blessed, I alloyed;
Kept a crown for a prince, but had none of my own;
Filled the place of a king, but ne’er had a throne;
Rescued a warrior, baffled a plot;
Was what I seemed not, seemed what I was not;
Devoted to slaughter, a price on my head,
A king’s lovely daughter watched by my bed.
How gently she dressed me, fainting with fear!
She never caressed me, nor wiped off a tear;
Ne’er moistened my lips, though parched and dry,
What marvel a blight should pursue and defy?
’Twas royalty nursed me wretched and poor;
’Twas royalty cursed me in secret, I’m sure.
I lived not, I died not, but tell you I must,
That ages have passed since I first turned to dust.
This paradox whence? this squalor, this splendor?
Say, was I king, or silly pretender?
Fathom the mystery, deep in my history—
Was I a man?
An angel supernal, a demon infernal?
Solve it who can.
 Answer

103.
A blind beggar had a brother. This blind beggar’s brother went to
sea and was drowned. But the man that was drowned had no
brother. What relation to him, then, was the blind beggar?
Answer

104.
Two brothers were walking together down the street, and one of
them, stopping at a certain house, knocked at the door, observing: “I
have a niece here, who is ill.” “Thank Heaven,” said the other, “I have
no niece!” and he walked away. Now, how could that be?
Answer

105.
“How is that man related to you?” asked one gentleman of
another.

“Brother or sister I have none,

But that man’s father was my father’s son.”

Answer

106.
 Describe a cat’s clothing botanically.
Answer

107.
What is that which boys and girls have once in a lifetime, men
and women never have, and Mt. Parnassus has twice in one place?
Answer

108.
Why is the highest mountain in Wales always white?
Answer

109.
To what two cities of Massachusetts should little boys go with
their boats?
Answer

110.

There kneels in holy St. Cuthbert’s aisles

No holier Father than Father Giles:
Matins or Vespers, it matters not which,
He is ever there like a saint in his niche;
Morning and midnight his Missal he reads,
Midnight and morning he tells his beads.
Wide-spread the fame of that holy man!
Potent his blessing, and dreaded his ban:
Wondrous the marvels his piety works
On unbelieving heathen, and infidel Turks,
But strangest of all is the power he is given
To turn maidens’ hearts to the service of Heaven.

St. Ursula’s Prioress comes to-day,

At holy St. Cuthbert’s shrine to pray,
She comes with an offering; she comes with a prayer;
For she leads to the altar the Lady Clare.
Mary Mother! how fair a maid
To yield the world for the cloister’s shade!

She yields, to-morrow, her gold and lands

For the Church’s use, to the Church’s hands,
Renounces the world, with its pleasures and wiles,
And to-day she confesses to Father Giles:
Slight is the penance, I ween, may atone
For all of sin she hath ever known!

“Daughter! since last thou didst kneel for grace,

Hath peace in thy heart found a dwelling-place?
From thy breast hast thou banished each idle thought?
Save thy spirit’s weal hast thou pined for naught?”
Moist is her kerchief, and drooped her head,
But my FIRST is all that poor Clara said.

“Daughter! thy cheek hath grown pale and thin—

Is thy spirit pure and chastened within?
Gone from thy voice is its ancient mirth?
Are thy sighs for Heaven? Thy tears for earth?”
For earth are her sighs, yet poor Clara knows
My SECOND no more than the spring’s first rose!

Why doth he tremble, that holy man,

At eye so sad, and at cheek so wan?
Less burning the tears, less bitter the sighs
Heaven asks from its willing votaries!
And, alas! when my ALL weeps as Clara weeps,
Holy Church gaineth more than she ofttimes keeps!

Answer
 NOTABLE NAMES.

111.

One name that means such fiery things

I can’t describe their pains and stings.

Answer

112.

Red as an apple, or black as night:

A heavenly sign, or a “perfect fright.”

Answer

113.

Place an edible grain ’twixt an ant and a bee,

And the well-beloved name of a poet you’ll see.

Answer

114.

Each human head, in time, ’tis said,

Will turn to him, though he is dead.
 Answer

115.

A little more
Than a sandy shore.

Answer

116.

The dearest, “sweetest, spot on earth to me,”

And, just surpassing it, a name you’ll see.

Answer

117.
A head-dress.
Answer

118.
Inclining to one of the four parts of the compass.
Answer

119.
A mineral and a chain of hills.
Answer

120.
A metal, and a worker in metals.
Answer

121.
A sound made by an insect; and a fastening.
Answer

122.
A sound made by an animal; and a fastening.
Answer

123.
A sound made by an animal, and a measure of length.
Answer

124.
A Latin noun and a measure of quantity.
 Answer

125.
A bodily pain.
Answer

126.
The value of a word.
Answer

127.
A manufactured metal.
Answer

128.
To agitate a weapon.
Answer

129.
A domestic animal, and what she cannot do.
Answer
 130.
Which is the greater poet, William Shakespeare or John Dryden?
Answer

131.
A barrier before an edible; a barrier built of an edible.
Answer

132.
One-fourth of the earth’s surface, and a preposition.
Answer

133.
One-fourth of the earth’s surface, and a conjunction.
Answer

134.
A song; to follow the chase.
Answer
 135.
A solid fence, a native of Poland.
Answer

136.
An incessant pilgrim; fourteen pounds weight.
Answer

137.
A quick succession of small sounds.
Answer

138.
Obsolete past participle of a verb meaning to illuminate.
Answer

139.
A carriage, a liquid, a narrow passage.
Answer
 140.
To prosecute, and one who is guarded.
Answer

141.
A letter withdraws from a name to make it more brilliant.
Answer

142.
A letter withdraws from a name and tells you to talk more.
Answer

143.
Why is a man who lets houses, likely to have a good many
cousins?
Answer

144.
What relation is the door-mat to the door-step?
Answer
 145.
What is it that gives a cold, cures a cold, and pays the doctor’s
bill?
Answer

146.
What is brought upon the table, and cut but never eaten?
Answer

147.
What cord is that which is full of knots which no one can untie,
and in which no one can tie another?
Answer

148.
What requires more philosophy than taking things as they come?
Answer

149.
What goes most against a farmer’s grain?
Answer
 150.
Which of Shakespeare’s characters killed most poultry?
Answer

151.
THE BISHOP OF OXFORD’S RIDDLE.

I have a large box,1 two lids,2 two caps,3 two musical

instruments,4 and a large number of articles which a carpenter
cannot dispense with.5 I have always about me a couple of good
fish,6 and a great number of small size;7 two lofty trees,8 and four
branches of trees;9 some fine flowers,10 and the fruit of an
indigenous plant.11 I have two playful animals,12 and a vast number
of smaller ones;13 also, a fine stag,14 and a number of whips without
handles.15
I have two halls or places of worship,16 some weapons of
warfare,17 and innumerable weather-cocks;18 the steps of a hotel;19
the House of Commons on the eve of a division;20 two students or
scholars,21 and ten Spanish gentlemen to wait upon their
neighbors.22
To these may be added, a rude bed;a the highest part of a
building;b a roadway over water;c leaves of grass;d a pair of
rainbows;e a boat;f a stately pillar;g a part of a buckle;h several social
assemblies;i part of the equipments of a saddle-horse;j a pair of
implements matched by another pair of implements much used by
blacksmiths;j several means of fastening.k
Answer
 152.

Be thou my FIRST in study or in play,

Through all the sunny hours which make the day.
Go to my SECOND, and do not despise
Her useful teachings, wonderful and wise:
Yet, for this purpose, never be my WHOLE,
Nor seek to wander from a wise control.

Answer

153.

Be sure you do my FIRST, whene’er you see

My SECOND in the garden or the tree;
But set my WHOLE upon the open plain
If you would have a plenteous crop of grain.

Answer

154.

My FIRST is a house men love to view;

My SECOND you do when you fasten your shoe;
My THIRD is one of a loving two;
My WHOLE I fain would be with you.

Answer

155.
 1. A common fish, or an Eastern bay;
2. Part of a visage, or self to say;
3. The lowest part of window or door;
Whole. The end of a will that was made before.

Answer

156.
I have a little friend who possesses something very precious. It is
a piece of workmanship of exquisite skill, and was said by our
Blessed Saviour to be an object of His Father’s peculiar care; yet it
does not display the attribute of either benevolence or compassion. If
its possessor were to lose it, no human ingenuity could replace it;
and yet, speaking generally, it is very abundant. It was first given to
Adam in Paradise, along with his beautiful Eve, though he previously
had it in his possession.
It will last as long as the world lasts, and yet it is destroyed every
day. It lives in beauty after the grave has closed over mortality. It is to
be found in all parts of the earth, while three distinct portions of it
exist in the air. It is seen on the field of carnage, yet it is a bond of
affection, a token of amity, a pledge of pure love. It was the cause of
death to one famed for beauty and ambition. I have only to add that it
has been used as a napkin and a crown, and that it appears like
silver after long exposure to the air.
Answer

157.
When the king found that his money was nearly all gone, and that
he really must live more economically, he decided on sending away
most of his wise men. There were some hundreds of them—very fine
old men, and magnificently dressed in green velvet gowns with gold
buttons. If they had a fault, it was that they always contradicted each
other when he asked their advice—and they certainly ate and drank
enormously. So, on the whole, he was rather glad to get rid of them.
But there was an old lay which he did not dare to disobey, which said
there must always be:

“Seven blind of both eyes;

Ten blind of one eye;
Five that see with both eyes;
Nine that see with one eye.”

Query: How many did he keep?

Answer

158.
Why are not Lowell, Holmes, and Saxe the wittiest poets in
America?
Answer

159.
Why did they call William Cullen Bryant, Cullen?
Answer

160.
Why do we retain only three hundred and twenty-five days in our
year?
Answer
 161.
What seven letters express actual presence in this place; and,
without transposition, actual absence from every place?
Answer

162.
Is Florence, (Italy,) on the Tiber? If not, on what river does it lie?
Answer both questions in one word.
Answer

163.
Is there a word in our language which answers this question, and
contains all the vowels?
Answer

164.
What is it that goes up the hill; and down the hill, and never
moves?
Answer

165.