Firm Structure and Responsibility Flashcards
What is Goal Congruence (incentive alignment)?
agreement of goals (manager goals with firm goals)
What is the Agency Problem?
managers (agents) may not act to maximize what shareholders value (firm value)
What is Decentralization?
a structure so that lower-level managers have the authority to make decisions (autonomy)
Pros of Decentralization
faster decisions, motivation, and feedback
Cons of Decentralization
suboptimal decisions, pseudo-autonomy, reduced shared resources
Responsibilities of Decentralized Organizations
cost centers, revenue centers, profit centers, investment centers
What is Responsibility Accounting?
system that measures the plans, budgets, actions, and actual results of each responsibility center
What are Belief Systems?
used to create intrinsic motivation and foster commitment to the firm’s purpose
What are Boundary Systems?
used to establish expectations, delineate inappropriate actions, and reduce risky behavior
What are Interactive Control Systems?
used to identify and track emerging threats and opportunities and set the firm up for continued success
What are Diagnostic Systems?
used to monitor compliance with strategy, align incentives, and identify and support key outcomes
What makes up Executive Compensation?
salary, incentive-based rewards, and others (pension, benefits, perks)
