OTD Chapters 1 & 2

Question 1

Ways managers measure organisational effectiveness

Answer 1

• Innovation (internal systems approach)
• Control (over the external environment to attract resources).
• Efficiency (produce in a cost and time-effective matter). (technical-approach)

Question 2

Organizational theory

Answer 2

The study of how organisations function and how they affect and are affected by the environment in which they operate.

Question 3

Two types of goals to measure effectiveness

Answer 3

1. Official goals: guiding principles the organization states in the annual report.
2. Operative goals: long- and short-term goals that guide managers and employees as they perform their work.

Question 4

Control (meaning)

Answer 4

Evaluates the organization’s ability to secure, manage, and control scarcity and value skills and resources.

Question 5

Innovation (meaning)

Answer 5

Evaluates the organization’s ability to be innovative as well as the ability to function quickly and responsively.

Question 6

Efficiency (meaning)

Answer 6

Evaluates the organization’s ability to convert skills and resources into goods and services efficiently (technical approach).

Question 7

Inside stakeholders (meaning)

Answer 7

People who are closest to an organization and have the strongest and most direct claim on organizational resources.

Question 8

Name the inside stakeholders

Answer 8

1. Shareholders
2. Managers
3. The workforce

Question 9

Managers (meaning)

Answer 9

Agents or employees of shareholders.

They are indirectly appointed by shareholders through an organization’s board of directors.

Question 10

Board of Directors (meaning)

Answer 10

Group elected by shareholders to oversee managers’ performance.

Question 11

Name the outside stakeholders

Answer 11

1. Customers
2. Unions
3. Government
4. Suppliers
5. Community
6. General public

Question 12

Outside stakeholders (meaning)

Answer 12

People who do not own the organization and are not employed by it but do have a claim or interest in it.

Question 13

Who own the company and exercise control over it?

Answer 13

Shareholders through their representatives: the board of directors.

Question 14

Who has the legal authority to fire and discipline corporate managers?

Answer 14

The board of directors.

Question 15

Who has the most power within the organization and is the principal representative of the shareholders?

Answer 15

The chair of the board of directors.

Question 16

Two kinds of directors

Answer 16

1. Inside directors.

2. Outside directors.

Question 17

Inside directors (meaning)

Answer 17

Directors who hold offices in a company’s formal hierarchy. They are full-time employees of the company.

Question 18

Outside directors (meaning)

Answer 18

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.

Question 19

CEO (meaning)

Answer 19

Sets the organizational strategy, policy, goals, and design.

Moreover, he or she is responsible for managing the relationship with external stakeholders.

Question 20

COO (meaning)

Answer 20

Responsible for the organization’s internal operations.

Question 21

Executive Vice Presidents (meaning)

Answer 21

Responsible for overseeing and managing a company’s most significant line and staff responsibilities.

Question 22

Agency problem

Answer 22

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.

Question 23

Moral Hazard Problem (meaning)

Answer 23

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.

Question 24

Two conditions that result in a moral hazard problem

Answer 24

1. When the agent has an information advantage over the principal.
2. When the agent, compared to the principal, has an incentive to pursue his/her own goals and objectives.

Question 25

How can the moral hazard problem be overcome?

Answer 25

By using governance mechanisms

Question 26

Governance mechanisms (meaning)

Answer 26

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.

Question 27

Types of governance mechanisms

Answer 27

• Stock-based compensation schemes.

- Promotion tournaments and career paths.

Question 28

Three models that determine whether a decision is ethical:

Answer 28

JUM

1. Justice model
2. Utilitarian model
3. Moral rights model

Question 29

Justice model (meaning)

Answer 29

An ethical decision is a decision that distributes benefits and harms among stakeholders in a fair, equitable, or impartial way.

Question 30

Utilitarian model (meaning)

Answer 30

An ethical decision is one that produces the greatest good for the greatest number of people.

Question 31

Moral rights model (meaning)

Answer 31

An ethical decision that best maintains and protects the fundamental rights and privileges of the people affected by it.

Question 32

Sources of organisational ethics

Answer 32

1. Societal ethics.
2. Individual ethics.
3. Professional ethics.

Question 33

Reasons behind unethical behaviour

Answer 33

• Self-interest
• Outside pressure
• Personal ethics