OTD Chapter 3

Question 1

Organizational environment

Answer 1

Set of forces surrounding an organization that have the potential to affect the way it operates and its access to scarce resources.

Question 2

Organizational domain

Answer 2

The particular range of goods and services that an organization produces and the customers and other stakeholders it serves.

Question 3

What is one main way in which an organization can enlarge and protect its domain?

Answer 3

By expanding internationally. Global expansion allows an organization to seek new opportunities and take advantage of its core competencies to create value for its stakeholders.

Question 4

Specific environment

Answer 4

The forces from outside stakeholder groups that directly affect an organization’s ability to secure resources.

The forces are: customers, distributors, unions, competitors, suppliers, government.

Question 5

General environment

Answer 5

The forces that shape the specific environment and affect the ability of all organization in a particular environment to obtain resources.

The forces are: demographic and cultural, international, political, technological, economic, and environmental.

Question 6

Environmental complexity

Answer 6

The strength, number, and interconnectedness of the specific and general forces that an organization has to manage.

Question 7

Environmental dynamism

Answer 7

The degree to which forces in the specific and general environment change quickly over time and thus contribute to the uncertainty an organization faces.

Question 8

Environmental richness

Answer 8

The amount of resources available to support an organization’s domain.

Question 9

Resource dependency theory

Answer 9

A theory that argues that the goal of an organization is to minimise its dependency on other organizations for the supply of scarce resources in its environment, and to find ways of influencing them to make resources available.

Question 10

Two basic types of interdependencies

Answer 10

1. Symbiotic interdependencies

2. Competitive interdependencies

Question 11

Symbiotic interdependencies

Answer 11

Interdependencies that exist between an organization and its suppliers and distributors.

Question 12

Competitive interdependencies

Answer 12

Interdependencies that exist among organizations that compete for scarce inputs and outputs.

Question 13

General advantage inter-organizational linkage

Answer 13

Reducing resource dependency

Question 14

General disadvantage inter-organizational linkage

Answer 14

Loss in autonomy or freedom of choice.

Question 15

Formal linkage

Answer 15

Both the direct coordination and the likelihood of coordination are based on explicit written agreement or one common ownership between organizations.

Question 16

Informal linkage

Answer 16

Rather indirect or loose method of coordination with a higher likelihood that the coordination is based on implicit or unspoken agreement.

Question 17

Strategies managing symbiotic resource interdependencies

Answer 17

Joint ventures
Long-term contracts
Minority ownership (keiretsu)
Networks

Question 18

Minority ownership

Answer 18

Makes organizations extremely interdependent and that interdependence forges strong cooperative bonds.

Question 19

Keiretsu

Answer 19

A group of organizations, each of which owns shares in other organisation in the group, that work together to further the group’s interests.

Question 20

Network

Answer 20

A cluster of different organizations whose actions are coordinated by contracts and agreements rather than through af formal hierarchy of authority.

Question 21

Joint venture

Answer 21

A strategic alliance among two or more organizations that agree to jointly establish and share ownership of a new business.

E.g., Microsoft and NBC Universal creating MSNBC.

Question 22

Strategies for managing competitive resource interdependencies

Answer 22

Collusion and cartels
Third-party linkage mechanisms
Strategic alliances
Merger and takeover

Question 23

Collusion

Answer 23

A secret agreement among competitors to share information for a deceitful or illegal purpose.

Question 24

Cartel

Answer 24

An association of firms that explicitly agree to coordinate activities.

Question 25

Third-party linkage mechanism

Answer 25

A regulation body, that allows organizations to share information and regulate the way they compete.

Question 26

Strategic alliance

Answer 26

An agreement that commits two or more companies to share their resources to develop a new joint business opportunity.

Question 27

Merger and takeover

Answer 27

A scenario where two firms of the same size join and become one. Both original firms cease to exist.

Question 28

Transaction costs

Answer 28

The costs of negotiating, monitoring, and governing exchanges between people.

Question 29

Transaction-cost theory

Answer 29

A theory that states that the goal of an organization is to minimize the costs of exchanging resources in the environment and the costs of managing exchanges within the organization.

Question 30

Sources of transaction costs

Answer 30

1. Environmental uncertainty - bounded rationality
2. Opportunism - small numbers
3. Risk - specific assets

Question 31

Environmental uncertainty & bounded rationality

Answer 31

Limited ability to understand the external environment.

Question 32

Opportunism & small numbers

Answer 32

When an organization is dependent on one supplier or a small number of trading partners, the potential for opportunism is great. The organization has no choice but to transact business with the supplier. The supplier, knowing this, might choose to supply inferior inputs reduce costs and increase profits.

Question 33

Risk & specific assets

Answer 33

An organization’s decision to invest money to develop specific assets for a relationship with another organization involves a high level of risk.

Question 34

Specific assets

Answer 34

Investments in skills, machinery, knowledge, and information that create value in one particular exchange relationship but have no value in any other exchange relationship.

Question 35

Transactions costs (costs of negotiating, monitoring, and governing exchanges between people) are low when:

Answer 35

• Organizations are exchanging nonspecific goods and services.
• Uncertainty is low
• There are many possible exchange partners.

Question 36

internal transaction costs

Answer 36

= Bureaucratic costs.

Question 37

Three linkage mechanisms that help organizations avoid bureaucratic (internal transaction) costs while minimising transaction costs are:

Answer 37

1. Keiretsu
2. Franchising
3. Outsourcing

Question 38

Franchising

Answer 38

A franchise is a business authorised to sell a company’s products in a certain area.

Question 39

Outsourcing

Answer 39

The process of moving a value creation activity that was performed inside an organization to the outside where it is done by another company.

Question 40

Keiretsu

Answer 40

Mechanism for achieving the benefits of a formal linkage mechanism without incurring its costs.

E.g., Toyota having a minority stake in its suppliers’ companies gives them a substantial control over the exchange relationship and allows it to avoid problems of opportunism and uncertainty.