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BSZ_IM_Ch11_4e - Managerial Economics and Organizational...

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Managerial Economics and Organizational Architecture Instructor’s Manual Part 1: Chapter Overview and Solutions Chapter 11: Page 1 CHAPTER 11 O RGANIZATIONAL A RCHITECTURE 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. The short case study on Eastman Kodak emphasizes some of the key points from the chapter. C HAPTER O UTLINE T HE F UNDAMENTAL P ROBLEM Architecture of Markets Architecture within Firms A RCHITECTURAL D ETERMINANTS Changing Architecture Interdependencies within the Organization C ORPORATE C ULTURE W HEN M ANAGEMENT C HOOSES AN I NAPPROPRIATE A RCHITECTURE M ANAGERIAL I MPLICATIONS Evaluating Management Advice Benchmarking O VERVIEW OF P ART 3 C ASE S TUDY : E ASTMAN K ODAK S UMMARY
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