BSZ_IM_Ch01_4e - Managerial Economics and Organizational...

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Managerial Economics and Organizational Architecture Instructor’s Manual Part 1: Chapter Overview and Solutions Chapter 1: Page 1 CHAPTER 1 I NTRODUCTION This chapter introduces the book. It begins with the collapse of Enron Corporation in 2001. This example illustrates how a company’s organizational design can affect its profit and likelihood of survival. It points to three critical elements of organizational design, which we refer to as organizational architecture . These elements include the assignment of decision rights, the reward system, and performance evaluation system. The chapter discusses the basics ideas behind economic analysis and how this framework can be used by managers to make better organizational, production, and pricing decisions. The chapter introduces the important concept of economic Darwinism and provides an overview of the book. C HAPTER O UTLINE M ANAGERIAL E CONOMICS AND O RGANIZATIONAL A RCHITECTURE Organizational Architecture Economic Analysis E CONOMIC D ARWINISM Survival of the Fittest Economic Darwinism and Benchmarking P URPOSE OF THE B OOK Our Approach to Organizations Overview of the Book C ASE S TUDY : B ARINGS B ANK T EACHING THE C HAPTER We suggest that all students read this short chapter. It summarizes key ideas that will be emphasized throughout the course and provides an overview of the book. The first class for our course occurs before the students have read the chapter. The class is used to summarize the objectives and mechanics of the course and to introduce some key concepts, especially organizational architecture. Primary objectives of this first class are to introduce the course to the students, get them interested and excited about the material, and introduce them to the economic view of organizations. Typically we start with a description of the course and stress that the course will provide students with a powerful framework that they can use for addressing many different types of management problems. We then ask students to consider the following quote:
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Managerial Economics and Organizational Architecture Instructor’s Manual Part 1: Chapter Overview and Solutions Chapter 1: Page 2 The average employee is motivated to do a good job that enhances his/her sense of self-worth. The best way to increase employee output is to show that you trust your employees and empower them. Some students will agree with this quote. Others will bring up incentives and the desire to make money. After this initial discussion, we ask the class whether they always trust auto mechanics, salespeople, stockbrokers, politicians, and shell-game operators. Students do not always trust these people. When asked why, they indicate that these people are likely to be working in their own self interest — not yours. We then ask why this general principle should not apply to employees within a firm. If employees are self- interested, does it always make sense to empower them? After this discussion, we build on the topic by having the students play the
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This note was uploaded on 04/27/2010 for the course FIN 320f taught by Professor Toprac during the Spring '08 term at University of Texas.

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BSZ_IM_Ch01_4e - Managerial Economics and Organizational...

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