OTD Chapters 1 & 2 Flashcards
Ways managers measure organisational effectiveness
- Innovation (internal systems approach)
- Control (over the external environment to attract resources).
- Efficiency (produce in a cost and time-effective matter). (technical-approach)
Organizational theory
The study of how organisations function and how they affect and are affected by the environment in which they operate.
Two types of goals to measure effectiveness
- Official goals: guiding principles the organization states in the annual report.
- Operative goals: long- and short-term goals that guide managers and employees as they perform their work.
Control (meaning)
Evaluates the organization’s ability to secure, manage, and control scarcity and value skills and resources.
Innovation (meaning)
Evaluates the organization’s ability to be innovative as well as the ability to function quickly and responsively.
Efficiency (meaning)
Evaluates the organization’s ability to convert skills and resources into goods and services efficiently (technical approach).
Inside stakeholders (meaning)
People who are closest to an organization and have the strongest and most direct claim on organizational resources.
Name the inside stakeholders
- Shareholders
- Managers
- The workforce
Managers (meaning)
Agents or employees of shareholders.
They are indirectly appointed by shareholders through an organization’s board of directors.
Board of Directors (meaning)
Group elected by shareholders to oversee managers’ performance.
Name the outside stakeholders
- Customers
- Unions
- Government
- Suppliers
- Community
- General public
Outside stakeholders (meaning)
People who do not own the organization and are not employed by it but do have a claim or interest in it.
Who own the company and exercise control over it?
Shareholders through their representatives: the board of directors.
Who has the legal authority to fire and discipline corporate managers?
The board of directors.
Who has the most power within the organization and is the principal representative of the shareholders?
The chair of the board of directors.
Two kinds of directors
- Inside directors.
2. Outside directors.
Inside directors (meaning)
Directors who hold offices in a company’s formal hierarchy. They are full-time employees of the company.
Outside directors (meaning)
Professional directors who hold either positions on the board of multiple companies, or are executives of other companies. They are not employees of the company.
CEO (meaning)
Sets the organizational strategy, policy, goals, and design.
Moreover, he or she is responsible for managing the relationship with external stakeholders.
COO (meaning)
Responsible for the organization’s internal operations.
Executive Vice Presidents (meaning)
Responsible for overseeing and managing a company’s most significant line and staff responsibilities.
Agency problem
Conflict of interest that occurs when agents don’t fully represent the best interests of the principals.
It is a problem in determining managerial accountability that arises when delegating authority to managers.
Moral Hazard Problem (meaning)
Situation where one party gets involved in a risky event knowing that it is protected against the risk and the other party will occur the costs.
Two conditions that result in a moral hazard problem
- When the agent has an information advantage over the principal.
- When the agent, compared to the principal, has an incentive to pursue his/her own goals and objectives.
How can the moral hazard problem be overcome?
By using governance mechanisms
Governance mechanisms (meaning)
the forms of control that align the interests of the principal and agent so both parties have the incentive to work together to maximize organizational effectiveness.
Types of governance mechanisms
- Stock-based compensation schemes.
- Promotion tournaments and career paths.
Three models that determine whether a decision is ethical:
JUM
- Justice model
- Utilitarian model
- Moral rights model
Justice model (meaning)
An ethical decision is a decision that distributes benefits and harms among stakeholders in a fair, equitable, or impartial way.
Utilitarian model (meaning)
An ethical decision is one that produces the greatest good for the greatest number of people.
Moral rights model (meaning)
An ethical decision that best maintains and protects the fundamental rights and privileges of the people affected by it.
Sources of organisational ethics
- Societal ethics.
- Individual ethics.
- Professional ethics.
Reasons behind unethical behaviour
- Self-interest
- Outside pressure
- Personal ethics
