1. Chapters 12 and 13 Collect and Discuss Assignment 4 Decision Rights The Level of Empowerment & Bundling Tasks into Jobs & Subunits

2. Dimensions of job design
Variety of Tasks
Decision rights or decision authority

3. Benefits of Decentralization
Effective use of “local” (specific) knowledge
Local tastes and preferences
Price sensitivities of particular customers
Conservation of management time
Senior management focus on strategy
Training and motivation for local managers

4. Costs of Decentralization
Potential agency (incentive) problems
Effective control systems may be expensive
Influence costs
Influence activities
= individuals’ attempts to affect the distribution of wealth or other benefits in an organization toward themselves, for motives of self-interest
Coordination costs and failures
Less effective use of central information

5. Decentralizing to Teams
Benefits of team decision making
Improved use of dispersed specific knowledge
Employee buy-in
Costs of team decision making
Collective-action problems (e.g. voting)
Free-rider problems
Use teams if benefits exceed costs

6. Teams: Free-rider example
Prisoner’s dilemma
If probability of working together again is high enough, players will work hard today (result – chapter 9 appendix)
Managerial implication for teams–
repetition facilitates cooperation (don’t change team composition too frequently)
Structure high rewards for cooperation and low if not

7. “Optimal” decentralization:
Limits to net gains to decentralization
Some decisions can be decentralized, or
Can decentralize within parameters, or
Decentralize decision management
Discuss

8. Decision management and control Fama-Jensen model example of loan approval
Decision control
Ratification
(by supervisor)
Monitoring
(check on performance of loan)
Decision management
Initiation
(rep recommends loan approval for unusual case)
Implementation
(rep grants loan)

9. Example of decision management and control
Grant major decision control rights to board
Ratifies major decisions initiated by CEO; monitors & can fire & compensate CEO
Initiates & implements major decisions

10. Alternative Organizational Structures
Principals/
agents
Private, For-Profit
Private, Nonprofit
Government
Proprietorship
Partnership
Corporation
Primary Stakeholders
Owner
Partners
Stockholders
Community
Citizens
Governing body
Senior partners
Elected board
Board of directors/ trustees
Legislative body
Chief Executive
Managing partner
President/
chair
director
Commissioner/head
Example of Organizational Structure
Mom & Pop grocery
Most law and accounting firms
Any corporation
Human service, arts, etc.
Departments, bureaus, etc.

11. Fama-Jensen Rx and Berle and Means
When decision makers are not owners, separate decision management and decision control
> Hierarchies
When decision maker is also the major residual claimant (owner), okay to combine decision management and control.

12. Influence costs
= Lobbying, politicking, and other nonproductive activities that employees conduct in order to influence decision makers
e.g. Sony acquired CBS records and top execs spent hours each day listening to requests for how decision rights were to be assigned in new organization
Can be reduced by imposing bureaucratic rules
But there is a cost to this approach as it makes the company less flexible and less able to respond to new information and situations

13. Specialized tasks in jobs
Benefits
comparative advantage
lower cross-training expense
Costs
foregone complementarities across tasks
coordination costs
functional myopia
reduced flexibility

14. Methods of grouping jobs
U-form of organization (unitary)
Functional specialization
M-form of organization (multidivisional)
Product/geographic subunits
Matrix organization
Combines aspects of U & M forms

15. Functional subunits (“U form”) advantages and disadvantages
promotes effective coordination within functional area
promotes functional expertise
well-defined promotion path
Disadvantages
opportunity cost of senior management time
coordination problems across departments
employee focus on functions, not customers

16. Battle of the functional managers
Ventura Motorcycle Company
functionally organized
Design, Marketing
New product design options
Speed, Safety
Marketing options
magazine advertising  older consumers
television advertising  younger consumers

17. Battle of the functional managers
Coordination problem
Could fail to reach either Nash equilibrium
Managerial solutions
Reconfigure around products and motivate through profit-based bonuses
OR form coordinating committees; evaluate & reward managers on value-maximizing coordination

18. Product/geographic subunits (“M form”) advantages and disadvantages
decision rights tied to specific knowledge
senior management able to focus on strategy
promotes coordination pertinent to product/area
Disadvantages
unit interdependencies may be ignored
Comparative advantage may be foregone

19. Matrix organizations advantages and disadvantages
Functional expertise
Customer-focused
Disadvantages
Battles between functional and product authorities
Costs of team decision making
Increase in potential influence costs

20. Evaluation of Decision Rights
Do decision rights fit the external environment and strategy?
Do decision makers have specific knowledge?
Is there sufficient oversight?
Do the economic benefits seem to outweigh the costs of decentralization?

21. Ore-phone
Ore-phone is a cellular phone service company trying to increase its market share in the Duluth area. The manager has just received the latest benchmarking figures from his consultant. Salesperson productivity compares very well, but customer service appears very weak. Customer loyalty is well below the industry average. Currently, sales employees are also responsible for servicing customer accounts and are paid a mid-range salary with a commission for each new customer. How might the manager re-bundle tasks to improve these figures? What are the benefits and the costs of re-bundling tasks to improve these figures?

22. 1. The CEO, von Hugel, is considering reorganizing as a multidivisional firm organized around customer type. Draw the revised organizational chart. 2. Discuss the pros and cons of the proposed reorganization, relative to the current structure. 3. Jessica Wilde, VP of product development, suggests that a matrix organization might be better. Draw the organization chart implied by her proposal. 4. Discuss the pros and cons of the matrix proposal relative to the multidivisional proposal.

23. Medford University, p. 325
Why did President Kobayashi appoint a task force to consider the issue of fringe benefits?
Should the president anticipate that all members of the task force will strive to cut university expenses? What actions can the president take to increase the likelihood that the task force members have this objective as a major priority?
Why did the president appoint the administrator of the hospital as the chair of the task force? What advice would you offer the chair in appointing subcommittee chairs? Explain.
Does the president want to commit to accepting the committee report or does she want to reserve the right to make modifications? Explain.
Why did the president appoint a key assistant as secretary of the task force?

24. Looking Forward November 18, 22, 23-- Labor Markets
Managerial Economics
Chapters 14
Cool Case: Safelite Auto Glass (A)
Deadline for drafts: Nov. 18, 22, or 23
Please signup for in class presentations
Nov. 18, 22, and first week
Nov. 29,30 and Dec 2 – second week
Course project due Dec. 6,7, and 8
Final Exam: Dec 13, 14, and 16