Organization Design

question 36

Essay

Organization Design. An effective organization design is one that allocates decision authority to that person or team of persons best able to perform a given task or influence a particular outcome. Decision authority allows individual employees to determine how and when to best deploy the productive resources and valuable information at their disposal. Of course, decision authority confers responsibility. It is thus imperative to monitor and evaluate performance. Managers and all employees must be held accountable for outcomes tied to individual decisions. Accountability can only be measured in terms of the tangible and intangible rewards derived from productive activity, and in terms of the penalties or sanctions tied to unproductive behavior. To minimize the costs of unproductive conflict with the firm, it is essential that the design of the organization effectively allocate decision making authority.
A. Describe centralized decision authority. Under what conditions does it work best?
B. What is decentralized decision authority, and when does it work best?

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Definitions:

Slope

In mathematics, it refers to the steepness or incline of a line, indicating the rate at which y-values change with respect to x-values.

Budget Constraint

The limits imposed on household choices by income, wealth, and product prices.

Choice Set

The collection of all possible options available for selection by a decision-maker.

Leftover Income

The amount of income that remains after all necessary expenses, such as bills and living costs, have been paid.