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Unformatted text preview: Chapter 01 - Introduction 1-1 CHAPTER 1 INTRODUCTION CHAPTER SUMMARY 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. CHAPTER OUTLINES M ANAGERIAL E CONOMICS AND O RGANIZATIONAL A RCHITECTURE Organizational Architecture Economic Analysis Academic Application: R&D and Executive Turnover Managerial Application: Economic Incentives and the Subprime Mortgage Crisis Managerial Application: Creative Responses to a Poorly Designed Incentive System E CONOMIC D ARWINISM Managerial Application: Economic Darwinism—General Motors and Chrysler Survival of the Fittest Economic Darwinism and Benchmarking P URPOSE OF THE B OOK Managerial Application: Transfers of Organizational Architecture across the Global Economy Our Approach to Organizations Overview of the Book TEACHING THE CHAPTER Chapter 1 is an important chapter since it introduces the perspective that is used throughout the rest of the text. There are several Managerial Applications that can be used to generate class discussion. The examples from this chapter can also be referred to as these concepts are reintroduced later in the text. Chapter 01 - Introduction 1-2 There are two Self-Evaluation Problems and three Review Questions at the end of the chapter that can be used for class discussion to determine whether students understand the fundamental concepts of the chapter before discussing the Analyzing Managerial Decisions scenario presented at the end of the chapter. There are two Analyzing Managerial Decisions scenarios presented in the chapter. The first, “Organizing Xerox Service Center”, asks students to evaluate the incentives that result from the current compensation structure of the call center. The second scenario, “Societe Generale”, is a more comprehensive scenario that asks students to evaluate the organizational architecture of the firm and the role its architecture played in allowing the events to transpire. (See the Solutions Manual for the answers to these problems). R EVIEW Q UESTIONS 1–1: What are the three aspects of organizational architecture?...
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- Spring '12