Exam 3
W.L. Gore & Associates (Strategy Highlight 11.2) 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 low level of formalization.
Which of the following statements about an organization's culture is NOT true? -A strong monitoring and supervision mechanism is needed to enforce the culture. -A positive culture motivates employees by appealing to high ideals. -Employees feel that they are part of a larger community by internalizing the firm's values and norms. -A positive culture encourages employees to make decisions not only with their heads but also with their hearts.
A strong monitoring and supervision mechanism is needed to enforce the culture.
At Opnic Corp., a cross-functional team is formed to work on a project for a new client. The team consists of Darius and four other members. At most of the team's presentations to senior management, Darius takes the lead and discusses project specifics with the management, while others chip in with additional information. At the completion of the project, Darius is recommended for promotion, while the other team members receive little recognition for their hard work. The reality is that Darius did very little actual work but spent some time compiling the project report based on different documents submitted by the others. The recommendation of Darius for promotion at Opnic Corp. is a typical consequence of _____.
Adverse selection
Curve Inc. is a software development firm based in California. It strives to provide highly differentiated software at cheaper prices when compared to its competitors. Which of the following organizational designs should Curve Inc. implement to ensure the maximum success of its business strategies?
Ambidextrous
W. L. Gore & Associates is the inventor of path-breaking new products such as breathable GORE-TEX fabrics, Glide dental floss, and Elixir guitar strings. Which of the following would be most likely to hinder its intention of fostering employee satisfaction, retention, and creativity? -A low degree of centralization -A highly organic organizational structure -An extremely formalized organizational structure -A flat organization structure
An extremely formalized organizational structure
Which of the following is an important internal corporate-governance mechanism? -Market for corporate control -Activist investors -Shareholder capitalism -Board of directors
Board of directors
Neville and Andre are customer care employees at JPN Care. In between calls, Neville and Andre spend time on Facebook and YouTube. The relaxed guidelines at JPN allow them to do that. However, sometimes, they knowingly avoid answering calls or keep customers on hold, while they check their social networking accounts. Such behavior:
Can be stopped by implementing performance incentives and strict control mechanisms.
Which of the following is NOT true of corporate governance in public stock companies? -Corporate governance seeks to create a separation between ownership and control. -Corporate governance consists of the mechanisms affecting the direction and control of corporate decisions and actions. -Corporate governance attempts to address the principal-agent problem. -Corporate governance is intended to benefit multiple stakeholders, not just shareholders.
Corporate governance seeks to create a separation between ownership and control.
One of the ways to foster ethical behavior in employees is to:
Create a control system that encourages desired values.
The Securities and Exchange Commission (SEC) makes all financial reports filed by public companies available electronically via the _____ database.
EDGAR
Which of the following terms or phrases best characterizes Zappos' organizational structure (Chapter Case 11)? -Mechanistic -Extremely tall -Extremely flat -Centralized
Extremely flat
McDonald's uses detailed standard operating procedures throughout the world to ensure product quality. This implies that McDonald's has a high degree of _____.
Formalization
Frank is a board member at Lofloy Greens Inc., a publicly traded company. In addition to his duties on the board, Frank is also a full-time employee as a senior manager at Spinson Locomotives Inc. Which of the following is most likely to be true of Frank? -Frank is an outside director on Lofloy's board of directors. -Frank is a part-time employee at Lofloy Greens. -Frank cannot serve as a director on Spinson Locomotives' board. -Frank is a stockholder of Lofloy Greens.
Frank is an outside director on Lofloy's board of directors.
Which of the following organizational structures matches best with an international strategy? -Functional -Matrix -Multidivisional -Simple
Functional
What was Goldman Sachs' rebuttal (Strategy Highlight 12.2) to SEC's claim that it defrauded investors?
Goldman Sachs contended it is up to the clients to assess the risks involved in any investments.
Adverse selection in a public stock company occurs when:
Information asymmetry increases the likelihood of choosing inferior alternatives.
The root cause of the principal-agent problem between senior executives and lower-level employees can be explained by the:
Informational advantage of the lower-level employees.
The informational advantage that agents possess over principals is often based on the fact that:
Insiders are the first to learn about important developments before the information is released to the public.
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:
Introducing results-only-work-environments to tap intrinsic motivations.
Hashim is a board member at Kluster Motors Inc. He is also a senior executive of the firm. On the other hand, the board is chaired by Compton Smith, the CEO of Jensen Electronics. According to this scenario, Hashim _____.
Is an inside director of Kluster Motors
Serena is the CEO of Pedalo Inc., a publicly traded company. The shareholders want Serena on the board of directors despite her recent appointment as the CEO. This decision of the shareholders is most likely because Serena:
Is likely to provide the board with valuable inside information.
Why does a firm use an organic organization combined with a functional structure when implementing a differentiation strategy?
It allows the firm to constantly upgrade core competencies in R&D, innovation, and marketing.
Which of the following is a disadvantage of a functional strategy? -It frequently lacks the tools required to pursue a cost-leadership strategy. -It does not allow organizations to be flexible or innovative. -It cannot effectively address a higher level of diversification. -It does not facilitate rich communication between members of the same department.
It cannot effectively address a higher level of diversification.
Which of the following statements is true of organizational culture? -Changes in culture are too frequent to have any impact on strategic implementation. -It is better for founder CEOs to create a relevant culture, structure, and strategy in the early stages. -According to research, more than 50 percent of firms change culture successfully. -It is always better to focus on output control and performance than on organizational culture.
It is better for founder CEOs to create a relevant culture, structure, and strategy in the early stages.
Which of the following is true of a functional structure? -It offers a lower degree of specialization than a simple structure. -It offers decentralized management. -It relies on a relatively flat organizational structure. -It relies on bottom-up communication rather than top-down communication.
It relies on a relatively flat organizational structure.
Which of the following characteristics of McDonald's best supports the fact that it is a mechanistic organization? -Its job descriptions are very detailed. -It frequently ranks among the top 500 companies to work for. -Its decision power is spread across the organization. -Its communication lines are bottom-up and well defined.
Its job descriptions are very detailed.
The day-to-day operations of a publicly traded company are conducted by:
Its managers and lower-level employees.
Ramadin is the CEO of Brownback Consulting Inc. Ramadin's efforts to persuade the board of directors to pursue a new business strategy fail. He borrows money from different sources and purchases all the outstanding shares of Brownback Consulting. What does this scenario best exemplify?
Leveraged buyout
Which of the following is an important external corporate-governance mechanism? -Market for corporate control -Executive compensation -Shareholder capitalism -Board of directors
Market for corporate control
Which of the following real-world scenarios best exemplifies formalization? -W.L. Gore's associates organizing themselves in project-based teams that are led by sponsors, not bosses -Yahoo's decision to fire its CEO after incurring huge losses -McDonald's use of standard operating procedures across the world -Zappos' focus on allowing its customer service employees to use their own approach rather than depend on scripts
McDonald's use of standard operating procedures across the world
Remote Inc. is a notebook manufacturing company based in Ohio. Remote's main market is Ohio. It aims at providing its products at better prices than its competitors. Which of the following structures is Remote Inc. likely to use if it has functional setup? -Mechanistic -Simple -Organic -Matrix
Mechanistic
Walmart is an example of a(n) _____ organization.
Mechanistic
Fast Call Inc. is a pharmaceutical company that has many breakthroughs in medicine to its credit. Unlike many other pharmaceutical companies, Fast Call 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, Fast Call Inc. is most likely an organization that is _____.
Organic
To effectively implement a differentiation strategy, managers rely on a functional structure that resembles an organization that is highly _____.
Organic
_____ organizations have a low degree of specialization and formalization as well as a flat organizational structure.
Organic
Plow Inc. is a greeting card manufacturing company. Plow's market dominance exists primarily because of the innovative designs of its greeting cards when compared to those of its competitors. In this scenario, Plow Inc.'s managers must ideally rely on a functional structure that resembles a(n) _____.
Organic organization
_____ are board members who are not employees of the firm but frequently are senior executives from other firms or full-time professionals.
Outside directors
An individual who is part owner of a company and hires another individual to act on his or her behalf is referred to as a(n) _____.
Principal
Clare, the CEO of Femica Inc., reports to the board of directors appointed by the shareholders of Femica. Based on shareholder suggestions, the board ties Clare's compensation to the performance of Femica. Due to this pressure, Clare begins devoting extra time to projects and undertakes other activities to ensure that she has job security and that she receives adequate compensation. This conflict between Clare's interests and the shareholders' interests best illustrates a(n) _____.
Principal-agent problem
Which of the following is an unintended side-effect of a high degree of specialization in an organization? -Reduced employee satisfaction due to repetition of tasks -Reduced productivity -Decreased trade-off between breadth and depth of knowledge -Decreased opportunities for the division of labor
Reduced employee satisfaction due to repetition of tasks
Who has legal authority to appoint the board of directors in a public stock company?
Shareholders
While working a night job at a call center, Neville creates an app called FastServe, 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 FastServe. He creates a startup called TYOP and hires three people to help him improve FastServe and maintain the servers that run it. In this scenario, TYOP most likely has a _____ structure.
Simple
A high degree of formalization in an organization is most likely to _____.
Slow down decision-making
Employees learn about an organization's culture through the process of _____.
Socialization
_____ describes the degree to which a task is divided into separate jobs.
Specialization
A compensation-based governance mechanism that allows executives to buy a company's stock at a predetermined price sometime in the future is called a(n) _____.
Stock option
Why does strategy implementation often require changes within an organization?
Strategy implementation requires a fit with the constantly changing external environment.
Yang's preference for obtaining consensus among his managers led to bickering and infighting.
Strategy implementation requires a fit with the constantly changing external environment.
The MBA oath first developed at Harvard and now signed by students at over 300 business schools is modeled after _____.
The Hippocratic oath in medicine
In public stock companies, which of the following expectations of principals is most likely to lead to principal-agent problems? -The expectation that the agent will go above and beyond the call of duty -The expectation that the agent will follow the country's laws and regulations -The expectation that the agent will reconnect economic and social needs -The expectation that the agent will act in the principals' best interest
The expectation that the agent will act in the principals' best interest
The conflict in a principal-agent relationship arises when:
The goals of the principals and agents are not aligned with each other.
What helps notions such as fairness, honesty, and reciprocity to be codified into law?
The notions are relatively universal norms.
Organizational design is:
The process of creating, implementing, and modifying the structure of an organization.
Which of the following is the source of the principal-agent problem in publicly traded companies? -The separation of ownership and control -Transferability of investor ownership -Limited liability for investors -The law of legal personality
The separation of ownership and control
Why is it difficult to imitate the organizational culture of firms like Southwest Airlines and Zappos?
Their culture reflects complex relationships with their employees, customers, and suppliers.
Which of the following is NOT true about the members of the board of directors in a public stock company? -They may hire and fire top management. -They are not accountable to shareholders. -They represent the shareholders' interests. -They oversee management of the firm's operations.
They are not accountable to shareholders.
In a public stock company, senior executives, such as the CEO, face agency problems when:
They delegate authority of strategic business units to general managers.
Outside directors are more likely to watch out for the interests of shareholders of the firm on whose board they serve because:
They have more independence than inside directors.
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.
Zappos established its unique organizational culture:
Through explicitly stated values that are connected to its reward system.
Which of the following best explains why a board of directors may grant stock options as part of a compensation package? -To reduce the transferability of stocks between stockholders -To align incentives between shareholders and management -To change the liability of shareholders from limited to unlimited -To bring about a separation of CEO/chair duality
To align incentives between shareholders and management
Which of the following is true of the process of organizing for competitive advantage? -Strategy formulation and strategy implementation are independent activities. -Organizing for competitive advantage is a static and not a dynamic process. -Formulating an effective strategy is a necessary and sufficient condition for gaining and sustaining competitive advantage. -To maintain competitive advantage, companies need to restructure as they grow and the competitive environment changes.
To maintain competitive advantage, companies need to restructure as they grow and the competitive environment changes.
Which of the following is true of the board of directors in a public stock company? -The functions of the board of directors are limited to ensuring the hiring and firing of CEOs. -Votes at shareholder meetings determine whose representatives are appointed to the board of directors. -Because shareholders generally have uniform interests, the composition of the board is generally a unanimous decision. -The board of directors acts as a facilitator to convey interests of the stockholders to the management without any real authority.
Votes at shareholder meetings determine whose representatives are appointed to the board of directors.
What was one of the reasons for Jerry Yang's failure at Yahoo?
Yang's preference for obtaining consensus among his managers led to bickering and infighting.
Saul is a manager at Holden Apparels Inc. and is friends with the company's CEO. This privilege gives Saul the information that Holden Apparels is in the midst of talks to take over a leading rival. Saul buys stocks of Holden with the expectation that its stocks will appreciate. But the deal falls through and the stocks of Holden depreciate in the following months. Are Saul's actions unethical? Why?
Yes, because it is unethical to trade stocks based on insider information irrespective of the final outcome
Coda Inc. is an apparel manufacturer. The management at Coda 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 _____.
input controls
