mgt chapter 11

Butterfly Technologies produces touch-enabled wearable devices. Its research and development team recently became aware of a new, open-source technology produced by a firm overseas that would improve the processing speed and battery life of all Butterfly devices. In this scenario, Butterfly would be best served to embrace A) open innovation. B) closed innovation. C) disruptive innovation. D) radical innovation.

Answer: A Explanation: Companies using an open innovation approach realize that great ideas can come from both inside and outside the company. Significant value can be had by commercializing external R&D and letting others commercialize internal R&D that does not fit with the firm's strategy.

A functional structure is recommended when a firm A) has a broad focus in terms of its product/service offerings. B) has a low level of diversification. C) has a low degree of specialization. D) diversifies into different product lines and geographies.

Answer: B Explanation: A functional structure is recommended when a firm has a fairly narrow focus in terms of product/service offerings (i.e., low level of diversification) combined with a small geographic footprint.

A high degree of formalization in an organization is most likely to A) improve customer service. B) slow down decision making. C) produce inconsistent results. D) increase creativity and innovation.

Answer: B Explanation: The drawbacks of formalization are that it might hinder a firm's innovation and customer service, and its ability to make a quick decision. It can also reduce creativity and innovation.

In which of the following ways does Zappos achieve organizational control? A) It continually changes the organizational values that guide its employees. B) It refrains from monitoring its employees' calls. C) It encourages employees to be creative and innovate and to go the extra mile to deliver a wonderful customer experience. D) It enforces that each group member's compensation depends in part on the group's overall productivity.

Answer: D Explanation: Norms, informal and tacit in nature, act as a social control mechanism. Zappos, for example, achieves organizational control partly through an employee's peer group: Each group member's compensation, including the supervisor's, depends in part on the group's overall productivity.

Ruby, a recent fashion design school graduate, has received praise for her clothing designs from her peers and friends on social networking sites; this has inspired her to set up a store where she can design and sell apparel. After experiencing some success with sales, she recruits two employees to handle customers at the store. However, she handles other day-to-day affairs herself, while continuing to design clothes. Which of the following is likely to be a pitfall of this organizational structure established by Ruby? A) Once the firm starts growing and attracting more customers she is likely to feel overloaded. B) Hiring more employees will result in loss of intellectual property. C) People are highly unlikely to buy clothes from a store run by a fashion design student. D) The online admiration of her designs will not translate into sales.

Answer: A Explanation: A likely pitfall of this organizational structure established by Ruby is that once the firm starts growing and attracting more customers she is likely to feel overloaded. A simple structure generally is used by small firms with low organizational complexity. In such firms, the founders tend to make all the important strategic decisions and run the day-to-day operations. Typically, neither professional managers nor sophisticated systems are in place, which often leads to an overload for the founder and/or CEO when the firms experience growth.

A firm that uses a structure that is organized along different business functions such as HR, R&D, Sales, and Marketing and also along different geographical areas such as different countries of the world is most likely using a ________ structure. A) global matrix B) multidivisional C) functional D) simple

Answer: A Explanation: A matrix structure combines both the M-form and the functional structure. For example, a firm can be organized according to SBUs (along a horizontal axis, like in the M-form), and also have a second dimension of organizational structure (along a vertical axis). In this case, the second dimension could consist of different geographic areas, each of which generally would house a full set of functional activities. This exemplifies a global matrix structure.

Which of the following provides an example of a common drawback of a functional strategy? A) Bert had a difficult time communicating efficiently with the manager of another department. B) Marietta was surprised about the inflexibility of her firm when it rejected her marketing plan. C) Juan's manager dismissed his idea because it was too innovative. D) Mary did not accept the position with the firm because it has an ineffective cost-leadership strategy.

Answer: A Explanation: Although the functional strategy facilitates rich and extensive communication between members of the same department, it frequently lacks effective communication channels across departments.

Burnley and Co., a graphic design firm, has offices in New York, Texas, California, New Mexico, and New Jersey. Each of these offices is headed by a president who reports directly to Emma Burnley, the CEO. The heads of the centralized HR, Finance, and Marketing teams report to Emma Burnley as well. Managers in the various offices also report to the CEO directly. Based on this information, which of the following statements is most likely to be true? A) Emma Burnley has a wide span of control. B) Burnley and Co. has a tall hierarchical structure. C) Emma Burnley is underworked. D) Burnley and Co. is a mechanistic organization.

Answer: A Explanation: Based on this information, the statement that is most likely to be true is that Emma Burnley has a wide span of control. Hierarchy determines the formal, position-based reporting lines and thus stipulates who reports to whom. The number of levels of hierarchy, in turn, determines the managers' span of control—how many employees directly report to a manager. In tall organizational structures, the span of control is narrow. In flat structures, the span of control is wide, meaning one manager supervises many employees.

Employees learn about an organization's culture through the process of A) socialization. B) exploitation. C) co-opetition. D) acculturation.

Answer: A Explanation: Employees learn about an organization's culture through socialization, a process whereby employees internalize an organization's values and norms through immersion in its day-to-day operations. Successful socialization, in turn, allows employees to function productively and to take on specific roles within the organization.

Island Home Goods pursues a related diversification strategy, deriving less than 70 percent of revenues from its original business unit, Island Furniture, and maintaining several related units including Island Lighting and Island Hardware. Which of the following structures is most likely to support this strategy? A) M-Form with centralized decision-making power (cooperative multidivisional) B) M-Form with decentralized decision-making power (competitive multidivisional) C) functional with centralized decision-making power D) functional with decentralized decision-making power

Answer: A Explanation: For firms that pursue either related or unrelated diversification, the M-form is the preferred organizational structure. Firms using the M-form organizational structure to support a related-diversification strategy tend to concentrate decision making at the top of the organization. Doing so allows a high level of integration. It also helps corporate headquarters leverage and transfer across different SBUs the core competencies that form the basis for a related diversification.

One of Waterfall Apparel's core values is to provide unbeatable customer service, a commitment introduced to the company by its founder more than 10 years ago. This value is expressed in the company's "True to You" campaign, which promises a no-questions-asked returns policy and an offer to stitch the customer's initials onto any item for free using a patented sewing technique, two features that are not offered by any of Waterfall's competitors. Although the campaign has resulted in a 10 percent decline in profits, Waterfall has decided to continue to pursue its founder's vision to reward customers and maintain employees' sense of purpose. Why does Waterfall's culture, exemplified by the "True to You" campaign, fail to support a competitive advantage? A) It does not increase economic value creation for the firm. B) It is not a rare resource. C) Waterfall lacks founder imprinting. D) The culture is not difficult to imitate.

Answer: A Explanation: For organizational culture to be the basis of a firm's competitive advantage, the firm's unique culture must help it in some way to increase its economic value creation (V-C). That is, it must either help in increasing the perceived value of the product/service and/or lower its cost of production/delivery. Moreover, according to the resource-based view of the firm, the resource—in this case, organizational culture—must be valuable, rare, difficult to imitate, and the firm must be organized to capture the value created. Waterfall's culture fails to support a competitive advantage because it does not increase economic value creation for the firm, as evidenced by the 10 percent decline in profits.

While working a night job at a call center, Eric creates an app called EatOut, which can be used to place orders at restaurants, rate the restaurants, and make reservations. Because he receives good responses for his app, he quits his current job to focus his efforts on EatOut. He creates a start-up called BestApps and hires three people to help him improve EatOut and maintain the servers that run it. In this scenario, BestApps most likely has a ________ structure. A) simple B) matrix C) mechanistic D) functional

Answer: A Explanation: In this scenario, BestApps most likely has a simple structure. A simple structure generally is used by small firms with low organizational complexity. In such firms, the founders tend to make all the important strategic decisions and run the day-to-day operations.

What most likely happens when a firm optimizes its organizational structure to its current situation? A) It plants the seed of subsequent failure: the tightly coupled system can break apart when internal or external pressures occur. B) It achieves superior performance. C) It makes it difficult for managers to make the necessary changes due to its effects on resource allocation and power distribution. D) It transforms strategy into actions and business models.

Answer: A Explanation: Inertia, a firm's resistance to changing the status quo, can set the stage for the firm's subsequent failure. Successful firms often plant the seed of subsequent failure: They optimize their organizational structure to the current situation. That tightly coupled system can break apart when internal or external pressures occur.

Why should managers using the M-form organizational structure to support a related-diversification strategy ideally concentrate decision making at the top of the organization? A) It allows a high level of integration. B) It helps contain the core competencies within a strategic business unit (SBU). C) It leads to competition between SBUs. D) It helps evaluate each SBU as a stand-alone profit-and-loss center.

Answer: A Explanation: Managers using the M-form organizational structure to support a related-diversification strategy should ideally concentrate decision making at the top of the organization. Doing so allows a high level of integration. It also helps corporate headquarters leverage and transfer across different SBUs the core competencies that form the basis for a related-diversification.

Why is it difficult to imitate the organizational culture of firms like Southwest Airlines and Zappos? A) Their culture reflects complex relationships with their employees, customers, and suppliers. B) They produce products that cannot be copied easily because of their complex designs. C) The employees in the organization themselves are unaware of the factors contributing to their organizational culture. D) It is not commercially viable for other companies to implement the same culture.

Answer: A Explanation: Once it becomes clear that a firm's culture is a source of competitive advantage, some competitors will attempt to imitate that culture. Therefore, only a culture that cannot be easily copied can provide a competitive advantage. However, it can be difficult, at best, to imitate the cultures of successful firms, for two reasons: causal ambiguity and social complexity.

Organizational design is A) the process of creating, implementing, and modifying the structure of an organization. B) primarily focused on replacing a firm's competitive advantage with competitive parity. C) a process that always functions independently of strategy formulation. D) primarily focused on formulating effective strategies, not implementing them.

Answer: A Explanation: Organizational design is the process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization. The key components of organizational design are structure, culture, and control.

ValueHealth is a successful drug manufacturer. Because the pharmaceutical industry features a high rate of change and the threat of disruption is high, ValueHealth should A) be prepared to restructure as the landscape changes. B) stick with the structure that brought it success no matter what happens. C) attempt to implement an unstructured organization. D) switch to whichever structure is most common in the industry.

Answer: A Explanation: Organizational inertia refers to a firm's resistance to change the status quo that can set the stage for the firm's subsequent failure. To avoid inertia and possible organizational failure, the firm needs a flexible and adaptive structure to effectively translate the formulated strategy into action. Ideally the firm would maintain a virtuous cycle of reconsidering organization, particularly in industries where the rate of change is high and potential disruption frequent.

Which of the following is true of the process of organizing for competitive advantage? A) To maintain competitive advantage, companies need to restructure as they grow and the competitive environment changes. B) Strategy formulation and strategy implementation are independent activities. C) Organizing for competitive advantage is a static and not a dynamic process. D) Formulating an effective strategy is a necessary and sufficient condition for gaining and sustaining competitive advantage.

Answer: A Explanation: Organizing for competitive advantage is a dynamic and not a static process. As seen in the Zappos example, to maintain competitive advantage, companies need to restructure as they grow and the competitive environment changes.

Output controls can sometimes discourage collaboration among different strategic business units. However, more and more work requires creativity and innovation, especially in highly-developed economies. One way firms are grappling with this issue is by A) introducing results-only-work-environments to tap intrinsic motivations. B) refining the budgeting process to encourage more department collaboration. C) updating standard operating procedures to allow more process flexibility. D) using output controls only when the goal is to ensure a predictable outcome.

Answer: A Explanation: Results-only-work-environments (ROWEs) have attracted significant attention. ROWEs are output controls that attempt to tap intrinsic (rather than extrinsic) employee motivation.

Which of the following best exemplifies the use of input controls? A) McDonald's use of standard operating procedures B) GM's use of the multidivisional strategy C) Zappos' use of monitoring-free customer service calls D) Southwest Airline's use of employee friendliness

Answer: A Explanation: Standard operating procedures, or policies and rules, are a frequently used mechanism when relying on input controls. McDonald's relies on detailed operating procedures to ensure consistent quality and service worldwide.

InSeason Inc. started a chain of organic supermarkets that had initial success. The managers achieved a mastery of the firm's current environment, thereby filling a need in the market. However, InSeason defined and measured it success by financial metrics, with a focus on short-term performance. As a result, the firm put in place metrics and systems to accommodate and manage increasing firm size due to continued success. As a result of this tightly coupled system, InSeason developed a A) resistance to change. B) innovative approach. C) significant value gap. D) holacratic system.

Answer: A Explanation: Success in the current environment can lead to a firm's downfall in the future, when the tightly coupled system of strategy and structure experiences internal or external shifts. First, the managers achieve a mastery of the firm's current environment. Second, the firm often defines and measures success by financial metrics, with a focus on short-term performance. Third, the firm puts in place metrics and systems to accommodate and manage increasing firm size due to continued success. Finally, as a result of a tightly coupled system, organizational inertia sets in—and with it, resistance to change.

The most important yet least visible element of organizational culture is A) values. B) norms. C) laws. D) artifacts.

Answer: A Explanation: The most important yet least visible element—values—is in the center of any diagram depicting organizational culture.

Why is the optimal organizational structure a multidivisional structure? A) Its focus is on driving down costs. B) Its focus is on producing differentiated products. C) Its focus is on retaining activities within a single geographic area. D) Its focus is on establishing a flat hierarchy operated in a decentralized fashion.

Answer: A Explanation: The optimal organizational structure match is a multidivisional structure. Rather than focusing on geographic differences as in the multidomestic strategy, the focus is on driving down costs due to consolidation of activities across different geographic areas.

Which of the following is an advantage of using a functional structure when pursuing a cost-leadership strategy? A) It allows a cost-leader to upgrade core competencies in manufacturing and logistics. B) It enables a cost-leader to build products that are different from its competitors' offerings. C) It enables a cost-leader to increase costs above that of its competitors. D) It allows a cost-leader to operate in a decentralized organizational structure.

Answer: A Explanation: To effectively implement a cost-leadership strategy, managers must create a functional structure that contains the organizational elements of a mechanistic structure—one that is centralized, with well-defined lines of authority up and down the hierarchy. Using a functional structure allows the cost-leader to nurture and constantly upgrade necessary core competencies in manufacturing and logistics.

Sunset Foods relies on a highly centralized functional structure to ensure consistency in the quality and taste of its products and to drive down costs via process innovations. However, as a consequence of its highly compartmentalized structure, the firm has found it difficult to transfer information and ideas from one department to the next. With the launch of its new line of breakfast foods coming up, how can Sunset improve its ability to collaborate without sacrificing the benefits of its current structure? A) by establishing cross-functional teams B) by switching to a simple structure C) by switching to a competitive M-form structure D) by decreasing managers' span of control

Answer: A Explanation: To overcome the lack of cross-departmental collaboration in a functional structure, a firm can set up cross-functional teams. In these temporary teams, members come from different functional areas to work together on a specific project or product, usually from start to completion. Each team member reports to two supervisors: the team leader and the respective functional department head.

Tina is the inventor of a personal fitness tracking device, and she is in the process of hiring employees after receiving investment funding. When considering how to structure her company, she should A) emulate the structure of the leading firm in the industry. B) first establish a strategy and let that be her guide. C) choose the structure that will give her the most control. D) ask employees what structure they are most comfortable with.

Answer: B Explanation: As demonstrated by business historian Alfred Chandler in his seminal book Strategy and Structure, organizational structure must follow strategy in order for firms to achieve superior performance: "Structure can be defined as the design of organization through which the enterprise is administered...structure follows strategy."

W. L. Gore & Associates is organized in such a way that it has no formal job titles, job descriptions, or chains of command. This implies that it has A) a formalized structure. B) a decentralized structure. C) organizational inertia. D) a top-down management style.

Answer: B Explanation: As mentioned in Strategy Highlight 11.1, W. L. Gore & Associates is organized in an informal and decentralized manner: It has no formal job titles, job descriptions, chains of command, formal communication channels, and written rules or standard operating procedures.

Why does strategy implementation often require changes within an organization? A) Strategy implementation is less important than strategy formulation. B) Strategy implementation transforms strategy into actions and business models. C) Strategy always follows structure. D) Strategy implementation does not affect resource allocation and power distribution within an organization.

Answer: B Explanation: Because strategy implementation transforms strategy into actions and business models, it often requires changes within the organization. However, strategy implementation often fails because managers are unable to make the necessary changes due to its effects on resource allocation and power distribution within an organization.

Which of the following types of groups is most susceptible to groupthink? A) a diverse group B) a cohesive group C) a heterogeneous group D) a decentralized group

Answer: B Explanation: Cohesive, non-diverse groups are highly susceptible to groupthink, which in turn can lead to flawed decision making with potentially disastrous consequences.

Which of the following statements is true of organizational culture? A) Changes in culture are too frequent to have any impact on strategic implementation. B) It is better for founder CEOs to create a relevant culture, structure, and strategy in the early stages. C) It is always better to focus on output control and performance than on organizational culture. D) According to research, more than 50 percent of firms change culture successfully.

Answer: B Explanation: It is best to develop a strong and strategically relevant culture in the first few years of a firm's existence. It has been documented that the initial structure, culture, and control mechanisms established in a new firm can be a significant predictor of later success.

Jen works as a front-line employee for a nationwide retail store. She reports to a floor manager, who reports to a departmental manager, who reports to a regional supervisor, who reports to a vice president, who reports to the CEO. Which of the following bestdescribes this retail store? A) flat structure B) tall structure C) centralized structure D) decentralize structure

Answer: B Explanation: Jen works for a retail store that has a tall structure. If many levels of hierarchy exist between the front-line employee and the CEO, the firm has a tall structure.

Which of the following real-world scenarios best exemplifies formalization? A) Zappos' focus on allowing its customer service employees to use their own approach rather than depend on scripts B) McDonald's use of standard operating procedures across the world C) W. L. Gore's associates organizing themselves in project-based teams that are led by sponsors, not bosses D) Yahoo's decision to fire its CEO after incurring huge losses

Answer: B Explanation: McDonald's use of standard operating procedures across the world best exemplifies formalization. Formalization captures the extent to which employee behavior is controlled by explicit and codified rules and procedures.

McDonald's operates Hamburger University that trains students to ensure consistent food quality across its outlets throughout the world. This indicates that McDonalds's A) is organic in nature. B) is mechanistic in nature. C) has an informal structure. D) has a decentralized structure.

Answer: B Explanation: Mechanistic organizations are characterized by a high degree of specialization and formalization, and a tall hierarchy that relies on centralized decision making. To ensure standardized operating procedures and consistent food quality throughout the world, McDonald's operates Hamburger University, a state-of-the-art teaching facility in a Chicago suburb, where 50 full-time instructors teach courses in chemistry, food preparation, and marketing.

Organizational culture can help a firm gain and sustain competitive advantage only if the culture makes a positive contribution to the firm's economic value creation and A) eventually gives way to core rigidity. B) obeys the VRIO principles. C) does not demonstrate causal ambiguity. D) displays an absence of social complexity.

Answer: B Explanation: Organizational culture can help a firm gain and sustain competitive advantage if the culture makes a positive contribution to the firm's economic value creation and obeys the VRIO principles. Organizational culture is an especially effective lever for new ventures due to its malleability.

ABX Inc. is an electronic appliances manufacturer that has many strategic business units (SBUs), among which, television and computers share a close relationship. These SBUs have to fight each other for R&D funding because there is a combined amount set aside for these two units. However, they share technological findings with each other and work together to ensure that their combined output is better that of the other SBUs. Such a relationship between SBUs in a business is referred to as A) competition. B) co-opetition. C) exploitation. D) exploration.

Answer: B Explanation: Such relationships between SBUs that are competitive, yet cooperative, are termed as co-opetition. Co-opetition among SBUs is both inevitable and necessary. They compete with one another for resources like capital and managerial talent, but they also need to cooperate to share competencies.

Which of the following global strategies best matches with a multidivisional structure? A) international B) multidomestic C) global-standardization D) transnational

Answer: B Explanation: The multidomestic strategy matches with a multidivisional structure. The multidivisional structure (or M-form) consists of several distinct strategic business units (SBUs), each with its own profit-and-loss (P&L) responsibility.

Galaxy Toys Inc., a toy manufacturing company, encourages its employees to enjoy their work by taking on additional responsibilities or switching jobs with each other. It allows its employees immense flexibility in charting their own career path within the organization. Chris has worked at Galaxy Toys for eight years, but has never had a boss or supervised an employee. Which of the following is most likely true in this scenario? A) Galaxy Toys Inc. is a mechanistic organization. B) Galaxy Toys Inc. has a flat organizational structure. C) Galaxy Toys Inc. has a high degree of centralization. D) Galaxy Toys' organizational culture is governed by codified rules.

Answer: B Explanation: The statement that is most likely true in this scenario is that Galaxy Toys Inc. has a flat organizational structure. Hierarchy determines the formal, position-based reporting lines and thus stipulates who reports to whom. If many levels of hierarchy exist between the front-line employee and the CEO in a firm, it has a tall structure. In contrast, if there are few levels of hierarchy in a firm, it has a flat structure.

Spiderweb Inc. is an apparel manufacturer. The management at Spiderweb prefers moderate control over the operations of the different departments such as R&D, design, marketing, and sales. It allocates a budget to each function at the beginning of each quarter. This is an example of implementing control through A) output controls. B) input controls. C) multidivisional strategy. D) centralization.

Answer: B Explanation: This is an example of implementing control through input controls. Input controls seek to define and direct employee behavior through a set of explicit, codified rules and standard operating procedures. Firms use input controls when the goal is to define the ways and means to reach a strategic goal and to ensure a predictable outcome. The use of budgets is a key to input controls.

Cheetah, a web development firm, wants to implement an organic structure to foster innovation and attract the most talented creative minds. Which of the following features will make it difficult to do so? A) decision-making power distributed throughout the organization B) a wide span of control for managers C) dedication to a cost-leadership business strategy D) flexible job descriptions for employees

Answer: C Explanation: A cost-leadership strategy is typically associated with mechanistic structures, which allow for standardization and economies of scale. A differentiation strategy is more commonly used by organic firms.

Which of the following is an advantage offered by a functional structure? A) It allows for an efficient top-down communication chain and thus relies on a relatively tall structure. B) It facilitates a lower division of labor, which is linked to higher productivity. C) It allows for a higher degree of specialization and deeper domain expertise. D) It facilitates a lower level of specialization.

Answer: C Explanation: A functional structure allows for a higher degree of specialization and deeper domain expertise than a simple structure. Higher specialization also allows for a greater division of labor, which is linked to higher productivity.

Why does a functional structure rely on a flat organizational structure? A) The work in the organization is centrally coordinated by the CEO. B) It allows for a higher degree of specialization and domain expertise. C) It allows for efficient bottom-up and top-down communication. D) It allows for the implementation of a differentiation strategy.

Answer: C Explanation: A functional structure allows for an efficient top-down and bottom-up communication chain between the CEO and the functional departments, and thus relies on a relatively flat structure.

Which of the following types of organizations best helps match a differentiation strategy to a functional structure? A) ambidextrous organization B) mechanistic organization C) organic organization D) rigid organization

Answer: C Explanation: An organic organization helps match a differentiation strategy to a functional structure. Organic organizations are characterized by a low degree of specialization and formalization, a flat organizational structure, and decentralized decision making.

Two leading home appliance companies, Redwood Inc. and Boxer Technologies, are in competition for market share. In their quest for exciting new products, Redwood employs an open innovation model, while Boxer pursues a closed innovation model. Which of the following statements is most likely true? A) Redwood has a greater chance of capturing market share. B) Boxer has a superior absorptive capacity. C) Boxer will protect its intellectual property with patents and trade secrets. D) Redwood is most concerned with securing first-mover advantages.

Answer: C Explanation: Boxer is likely to protect its research and development findings with patents and trade secrets. Firms in the closed innovation model are extremely protective of their intellectual property. This not only allows the firm to capture all the benefits from its own R&D, but also prevents competitors from benefiting from it.

Turquoise Games relies on its employees to provide innovative ideas for new educational products. To foster intrinsic motivation in its workforce, Turquoise should A) offer bonuses to employees whose ideas go into production. B) threaten to fire employees who do not come up with at least one new idea per week. C) give employees a "free day" every two weeks to pursue ideas for new educational toys. D) distribute a list of standard operating procedures for employees to follow.

Answer: C Explanation: By giving employees a free day to pursue ideas relating to educational toys, Turquoise provides intrinsic motivation for its employees. Intrinsic motivation is driven by the employee's interest in and the meaning of the work itself. In contrast, extrinsic motivation is driven by external factors such as awards and higher compensation, or punishments like demotions and layoffs (the carrot-and-stick approach). Intrinsic motivation in a task is highest when an employee has autonomy (about what to do), mastery (how to do it), and purpose (why to do it).

Why are controls like budgets and operating procedures that McDonald's implements known as input controls? A) They are independent of an organization's culture. B) They are implemented by corporate headquarters. C) They are considered before employees make any decisions. D) They are ad hoc and not codified.

Answer: C Explanation: Firms use input controls when the goal is to define the ways and means to reach a strategic goal and to ensure a predictable outcome. They are called input controls because management designs these mechanisms so they are considered before employees make any business decisions.

Harvey's, a large and successful retail chain on the West Coast, decides to expand its operations across the U.S. Which of the following organizational structures should Harvey's use? A) basic B) simple C) multidivisional D) functional

Answer: C Explanation: Harvey's should use a multidivisional organizational structure. Over time, as a firm diversifies into different product lines and geographies, it implements a multidivisional or a matrix structure. The multidivisional structure (or M-form) consists of several distinct strategic business units (SBUs), each with its own profit-and-loss (P&L) responsibility.

Uptown Office Systems recently underwent a reorganization. Based on customer feedback, the company eliminated many of its middle management positions and implemented a flatter structure. Which of the following is a possible drawback of this decision? A) Employees will have less power and autonomy, resulting in a loss of morale. B) Internal communications and decision-making processes will be slower. C) The increased span of control for remaining managers may lead to higher levels of stress and possible burnout. D) Employees will be forced to take on more specialized roles and may become bored by repetitive tasks.

Answer: C Explanation: In flat structures, the span of control is wide, meaning one manager supervises many employees. In recent years, firms have de-layered by reducing the headcount (often middle managers), making the organizations flatter and more nimble. This, however, puts more pressure on the remaining managers, who have to supervise and monitor more direct reports due to an increased span of control.

Telescopic Inc., a web development firm, is headed by Rob Dennis, the CEO. Each functional department of the company—marketing, finance, and HR—has a president who reports to the CEO directly. Each department has various managers who manage teams. The managers report to the presidents, and the team leads report to the managers. Finally, the employees at the lowest level report to their team leads. It is rare for a lower-level employee to interact with the CEO of the company. In this scenario, Telescopic Inc. can be said to have a(n) A) organic organizational structure. B) decentralized organizational structure. C) tall hierarchical structure. D) flat hierarchical structure.

Answer: C Explanation: In this scenario, Telescopic Inc. can be said to have a tall hierarchical structure. Hierarchy determines the formal, position-based reporting lines and thus stipulates who reports to whom. If many levels of hierarchy exist between the front-line employee and the CEO in a firm, it has a tall structure.

________ describes the collectively shared values and norms of an organization's members. A) Competitive advantage B) Organizational structure C) Organizational culture D) Core competency

Answer: C Explanation: Just as people have distinctive personalities, organizations also have unique cultures that capture "how things get done around here." Organizational culture describes the collectively shared values and norms of an organization's members.

Mona sets up a business consulting firm in which the employees are motivated because they find their work interesting and creative. She carefully hires workers who fit well with their assigned tasks. Also, she clearly defines the results expected of each worker, but allows the workers to determine the means to these results. Which of the following bestdescribes Mona's business? A) a firm that relies on high input controls to tap into intrinsic motivation B) a firm that relies on high input controls to tap into extrinsic motivation C) a firm that relies on high output controls to tap into intrinsic motivation D) a firm that relies on high output controls to tap into extrinsic motivation

Answer: C Explanation: Mona has set up a firm that relies on high output controls to tap into intrinsic motivation. Output controls seek to guide employee behavior by defining expected results (outputs) but leave the means to those results open to individual employees. Intrinsic motivation is driven by the employee's interest in and the meaning of the work itself.

Which of the following is a disadvantage of a functional strategy? A) It frequently lacks the tools required to pursue a cost-leadership strategy. B) It does not facilitate rich communication between members of the same department. C) It cannot effectively address a higher level of diversification. D) It does not allow organizations to be flexible or innovative.

Answer: C Explanation: One of the drawbacks of the functional structure is that it cannot effectively address a higher level of diversification, which often stems from further growth.

________ refers to a firm's resistance to change the status quo that can set the stage for the firm's subsequent failure. A) PESTEL factors B) Formalization C) Organizational inertia D) Centralization

Answer: C Explanation: Organizational inertia refers to a firm's resistance to change the status quo that can set the stage for the firm's subsequent failure.

When a firm diversifies into different product lines and geographies, a ________ structure is preferred. A) simple B) functional C) multidivisional D) network

Answer: C Explanation: Over time, as a firm diversifies into different product lines and geographies, it implements a multidivisional or a matrix structure. The multidivisional structure (or M-form) consists of several distinct strategic business units (SBUs), each with its own profit-and-loss (P&L) responsibility.

A firm's ________ determines how the work efforts of individuals and teams are orchestrated and how resources are distributed. A) norm B) culture C) structure D) control

Answer: C Explanation: Some of the key decisions managers must make when designing effective organizations pertain to the firm's organizational structure. That structure determines how the work efforts of individuals and teams are orchestrated and how resources are distributed.

Which of the following real-world scenarios best exemplifies the use of organizational culture to build competitive advantage? A) W. L. Gore & Associates organizes its employees into project-based teams. B) Apple develops high-tech products that are preferred by consumers across the world. C) Southwest Airlines pilots sometimes help load baggage, which results in quick turnaround time. D) GM offers compensation if its products do not meet a consumer's expectations.

Answer: C Explanation: Southwest Airline's (SWA's) business strategy—being a cost-leader in point-to-point air travel—is fairly simple, and that SWA's competitive advantage actually comes from its unique culture. Friendly and highly energized employees work across functional and hierarchical levels. Even Southwest's pilots pitch in to help load baggage quickly when needed. As a result, SWA's turn time between flights is only 15 minutes, whereas competitors frequently take two to three times as long.

Which of the following is an unintended side effect of a high degree of specialization in an organization? A) decreased trade-off between breadth and depth of knowledge B) decreased opportunities for the division of labor C) reduced employee satisfaction due to repetition of tasks D) reduced productivity

Answer: C Explanation: Specialization describes the degree to which a task is divided into separate jobs—that is, the division of labor. While a high degree of the division of labor increases productivity, it can also have unintended side effects such as reduced employee job satisfaction due to repetition of tasks.

Successful ________ requires managers to design and shape structure, culture, and control mechanisms. A) strategy innovation B) strategy formulation C) strategy implementation D) strategy diversification

Answer: C Explanation: Successful strategy implementation requires managers to design and shape structure, culture, and control mechanisms. In doing so, they execute a firm's strategy as they put its accompanying business model into action.

To effectively implement a differentiation strategy, managers rely on a functional structure that resembles an organization that is highly A) formalized. B) specialized. C) organic. D) mechanistic.

Answer: C Explanation: To effectively implement a differentiation strategy, managers rely on a functional structure that resembles an organic organization.

An organization that is organized according to strategic business units (SBUs) and also along organizational structures is most likely using a ________ structure. A) functional B) multidivisional C) matrix D) simple

Answer: C Explanation: To reap the benefits of both the M-form and the functional structure, many firms employ a mix of these two organizational forms, called a matrix structure. The idea behind the matrix structure is to combine the benefits of the M-form (domain expertise, economies of scale, and the efficient processing of information), with those of the functional structure (responsiveness and decentralized focus).

Tony's Tacos is a nationwide fast-food chain. Decision power resides at the top of the organization. Each job is documented in minute detail. The firm has many levels of supervision, including vice presidents and regional managers. Tony's headquarters provides detailed instructions to each of its franchisees so that they provide comparable quality and service across the board. Based on this scenario, which of the following is an accurate statement about Tony's? A) Tony's has a low degree of specialization and formalization, a high degree of centralization, and relies on a flat hierarchy. B) Tony's has a high degree of specialization and formalization, a low degree of centralization, and relies on a tall hierarchy. C) Tony's has a high degree of specialization, formalization, and centralization and relies on a tall hierarchy. D) Tony's has a low degree of specialization, formalization, and centralization and relies on a flat hierarchy.

Answer: C Explanation: Tony's has a high degree of specialization (employees are assigned specific tasks such as food prep, cook, cashier), formalization (each job documented in minute detail; detailed instructions to each of its franchisees), and centralization (decision power resides at the top) and relies on a tall hierarchy (many levels of supervision).

Why does a firm use an organic organization combined with a functional structure when implementing a differentiation strategy? A) It allows the firm to create incentives to foster process innovation in order to drive down cost. B) It allows the firm to reduce its cost below that of competitors while offering acceptable value. C) It allows the firm to constantly upgrade core competencies in R&D, innovation, and marketing. D) It allows the firm to nurture and constantly upgrade necessary core competencies in manufacturing and logistics.

Answer: C Explanation: Using a functional structure with an organic organization allows the differentiator to nurture and constantly upgrade necessary core competencies in R&D, innovation, and marketing. The functional structure should be set up to allow the firm to reap economies of scope from its core competencies, such as by leveraging its brand name across different products or its technology across different devices.

A company that is using extrinsic motivation as an output control mechanism will most likely A) organize training sessions for employees. B) cut budgets during recessions. C) implement a peer review system. D) threaten to lay off employees if they do not achieve targets.

Answer: D Explanation: A company that is using extrinsic motivation as an output control mechanism will most likely threaten to lay off employees if they do not achieve targets. Extrinsic motivation is driven by external factors such as awards and higher compensation, or punishments like demotions and layoffs (the carrot-and-stick approach).

What is most likely to happen if a firm relies too long on a competency without honing, refining, and upgrading as the firm and the environment change? A) The firm's original core competency can turn from a liability into an asset. B) The firm's organizational inertia can turn into its core rigidity. C) The firm's competitive parity can turn into its competitive advantage. D) The firm's culture can turn from a core competency into a core rigidity.

Answer: D Explanation: An organization's culture can be one of its strongest assets, but also its greatest liability. An organization's culture can turn from a core competency into a core rigidity if a firm relies too long on the competency without honing, refining, and upgrading as the firm and the environment change.

GM's insistence on sticking to a bureaucratic culture combined with its M-form structure and its subsequent failure to adapt to changing customer preferences for more fuel-efficient cars, produce higher quality, and create innovative designs best exemplifies A) decentralization. B) founder imprinting. C) groupthink. D) core rigidity.

Answer: D Explanation: An organization's culture can be one of its strongest assets, but also its greatest liability. GM's strong culture led to organizational inertia. This resulted in a failure to adapt to changing customer preferences for more fuel-efficient cars, and prevented higher quality and more innovative designs.

________ refers to the degree to which decision making is concentrated at the top of the organization. A) Specialization B) Formalization C) Naturalization D) Centralization

Answer: D Explanation: Centralization refers to the degree to which decision making is concentrated at the top of the organization. Centralized decision making often correlates with slow response time and reduced customer satisfaction.

Fine Lines Inc. is a notebook manufacturing company based in Ohio. Fine Lines' main market is Ohio. It aims at providing its products at better prices than its competitors. Which of the following structures is Fine Lines Inc. likely to use if it has functional setup? A) organic B) simple C) matrix D) mechanistic

Answer: D Explanation: Fine Lines Inc. is most likely to use a mechanistic structure if it has a functional setup. A functional structure is recommended when a firm has a fairly narrow focus in terms of product/service offerings (i.e., low level of diversification) combined with a small geographic footprint. To effectively implement a cost-leadership strategy, managers must create a functional structure that contains the organizational elements of a mechanistic structure.

Which of the following features helps match a cost-leadership strategy to a functional structure? A) decentralization B) process and product innovations C) flexibility and mutual adjustment D) focus on economies of scale

Answer: D Explanation: Focus on economies of scale helps match a cost-leadership strategy to a functional structure. Because a functional structure services the average customer, and thus targets the largest market segment possible, it should focus on leveraging economies of scale to further drive down costs.

Avalanche operates as a strategic business unit (SBU) under Snowfall Inc., a home-furnishings manufacturer. From this information, it may be reasonable to infer that A) Avalanche does not have its own profit and loss responsibility. B) Avalanche is dependent on the other SBUs in Snowfall Inc. C) Avalanche has a matrix organizational structure. D) Avalanche is led by its own CEO (or equivalent general manager).

Answer: D Explanation: From this information, it may be reasonable to infer that Avalanche is led by its own CEO (or equivalent general manager). The multidivisional structure (or M-form) consists of several distinct strategic business units (SBUs), each with its own profit-and-loss (P&L) responsibility. Each SBU is operated by Snowfall independently from one another, and each is led by a CEO (or equivalent general manager) who is responsible for the unit's business strategy and its day-to-day operations.

Which of the following statements best describes groupthink? A) It is a process by which the founder defines and shapes an organization's culture, which can persist for decades after his or her departure. B) It is a situation in which organizations compete with one another for resources, but they also need to cooperate to share competencies. C) It is a process whereby employees internalize an organization's values and norms through immersion in its day-to-day operations. D) It is a situation in which opinions coalesce around a leader without individuals critically challenging and evaluating that leader's opinions and assumptions.

Answer: D Explanation: Groupthink is defined as a situation in which opinions coalesce around a leader without individuals critically challenging and evaluating that leader's opinions and assumptions. Cohesive, non-diverse groups are highly susceptible to groupthink, which in turn can lead to flawed decision making with potentially disastrous consequences.

BioCure Inc. is a pharmaceutical company that has many breakthroughs in medicine to its credit. Unlike many other pharmaceutical companies, BioCure has a relaxed work environment where employees are free to discuss projects with each other. Employees are encouraged to choose the projects that interest them; communication between team members and their supervisors is open and easy. Because of the company's work culture, its employees feel motivated to work harder and display more entrepreneurial behaviors. In this scenario, BioCure Inc. is most likely an organization that is A) formalized. B) mechanistic. C) centralized. D) organic.

Answer: D Explanation: In this scenario, BioCure Inc. is most likely an organic organization. Organic structures tend to be correlated with the following: a fluid and flexible information flow among employees in both horizontal and vertical directions; faster decision making; and higher employee motivation, retention, satisfaction, and creativity. Organic organizations also typically exhibit a higher rate of entrepreneurial behaviors and innovation.

Which of the following accurately describes an organic organization? A) an inflexible organization that fosters slow decision making and high employee motivation B) an inflexible organization that fosters fast decision making and high employee motivation C) a flexible organization that fosters slow decision making and high employee motivation D) a flexible organization that fosters fast decision making and high employee motivation

Answer: D Explanation: Organic organizations often are flexible and foster fast decision making and high employee motivation.

________ define appropriate employee attitudes and behaviors. A) Values B) Artifacts C) Appraisals D) Norms

Answer: D Explanation: Organizational culture describes the collectively shared values and norms of an organization's members. Values define what is considered important. Norms define appropriate employee attitudes and behaviors.

Which of the following statements is true of strategy in an organization? A) Strategy implementation is considered unsuccessful if it requires changes within an organization. B) To implement a strategy successfully, an organization's structure must be rigid. C) Strategy implementation does not affect resource allocation and power distribution within an organization. D) Organizational structure must follow strategy in order for firms to achieve superior performance.

Answer: D Explanation: Organizational structure must follow strategy in order for firms to achieve superior performance. This tenet implies that to implement a strategy successfully, organizational design must be flexible enough to accommodate the formulated strategy and future growth and expansion.

Which of the following organizational structures matches best with an international strategy? A) simple B) matrix C) multidivisional D) functional

Answer: D Explanation: The functional structure matches best with an international strategy. In an international strategy, the company leverages its home-based core competency by moving into foreign markets.

Keyhole Corporation is the parent company of Inspire.com and Roker Inc. To cut costs, Keyhole integrated InSpire.com's and Roker Inc.'s management functions with Keyhole's management, while keeping other functions such as product development independent. Keystone has encourage the senior teams at both Inspire and Roker to exploit the success of their existing products while exploring new products for the future. This scenario best exemplifies a(n) A) multidivisional structure. B) organic organization. C) simple structure. D) ambidextrous organization.

Answer: D Explanation: The goal for managers who want to pursue a blue ocean strategy is to build an ambidextrous organization, one that enables managers to balance and harness different activities in trade-off situations. Here, the trade-offs to be addressed involve the simultaneous pursuit of low-cost and differentiation strategies. Ambidexterity describes a firm's ability to address trade-offs not only at one point but also over time. It encourages managers to balance exploitation—applying current knowledge to enhance firm performance in the short term—with exploration—searching for new knowledge that may enhance a firm's future performance.

Once a firm finds success in a given organizational structure, it should seek to reinforce and maintain that structure for the life of the firm.

Answer: FALSE Explanation: Inertia, a firm's resistance to changing the status quo, can set the stage for the firm's subsequent failure. Successful firms often plant the seed of subsequent failure: They optimize their organizational structure to the current situation. That tightly coupled system can break apart when internal or external pressures occur. To avoid inertia and possible organizational failure, the firm needs a flexible and adaptive structure to effectively translate the formulated strategy into action.

An open innovation model reduces a firm's absorptive capacity.

Answer: FALSE Explanation: One key assumption underlying the open innovation model is that combining the best of internal and external R&d will more likely lead to a competitive advantage. This requires that the company must continuously upgrade its internal R&d capabilities to enhance its absorptive capacity—its ability to understand external technology developments, evaluate them, and integrate them into current products or create new ones.

Results-only-work-environments (ROWEs) are characterized by their use of extrinsic motivations such as promotions or the threat of layoffs.

Answer: FALSE Explanation: ROWEs are output controls that attempt to tap intrinsic (rather than extrinsic) employee motivation, which is driven by the employee's interest in and the meaning of the work itself. In contrast, extrinsic motivation is driven by external factors such as awards and higher compensation, or punishments like demotions and layoffs (the carrot-and-stick approach).

A primary advantage of the matrix organizational structure is that it simplifies decision making and communication in geographically diverse organizations.

Answer: FALSE Explanation: Though it is appealing in theory, the matrix structure does have shortcomings. It is usually difficult to implement: Implementing two layers of organizational structure creates significant organizational complexity and increases administrative costs. Also, reporting structures in a matrix are often not clear. In particular, employees can have trouble reconciling goals presented by their two (or more) supervisors. Adding an additional layer of hierarchy can also slow decision making and increase bureaucratic costs.

A planned emergence approach to strategic planning is most likely to be found in a highly centralized firm.

Answer: FALSE Explanation: Top-down strategic planning takes place in highly centralized organizations. Planned emergence is found in more decentralized organizations.

A firm that successfully balances exploitation of current opportunities and exploration of future possibilities is considered ambidextrous.

Answer: TRUE Explanation: Ambidexterity describes a firm's ability to address trade-offs not only at one point but also over time. It encourages managers to balance exploitation—applying current knowledge to enhance firm performance in the short term—with exploration—searching for new knowledge that may enhance a firm's future performance.

Firms that pursue a closed approach to innovation typically enjoy first-mover advantages.

Answer: TRUE Explanation: Firms in the closed innovation model are extremely protective of their intellectual property. This not only allows the firm to capture all the benefits from its own R&d, but also prevents competitors from benefiting from it. The mind-set of firms in the closed innovation model is that to profit from R&d, the firm must come up with its own discoveries, develop them on its own, and control the distribution channels. Strength in R&d is equated with a high likelihood of benefiting from first-mover advantages.

Firms with a flat structure and a low degree of specialization tend to foster innovation better than firms with a tall structure and high degree of specialization.

Answer: TRUE Explanation: Organic organizations have a low degree of specialization and formalization, a flat organizational structure, and decentralized decision making. Organic organizations typically exhibit a higher rate of entrepreneurial behaviors and innovation. Organic structures allow firms to foster R&D and/or marketing, for example, as a core competency.

Organizational design involves establishing a firm's structure, culture, and control mechanisms.

Answer: TRUE Explanation: Organizational design is the process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization. The key components of organizational design are structure, culture, and control.

A change in company culture is most commonly accompanied by a change in leadership.

Answer: TRUE Explanation: The primary means of cultural change is for the corporate board of directors to bring in new leadership at the top, which is then charged to make changes in strategy and structure. After all, executives shape corporate culture in their decisions on how to structure the organization and its activities, allocate its resources, and develop its system of rewards.