Managerial Economics

Topics: Economics, Opportunity cost, Pareto efficiency Pages: 6 (1720 words) Published: January 16, 2013
1. Define the three aspects of organizational architecture.

The three aspects of organizational structures as highlighted in the synopsis of Managerial Economics and Organizational Architecture are as follows :

1. The assignment of decision rights within the firm
2. The methods of rewarding individuals
3. The structure of systems to evaluate the performance of individuals and units

These three components are often referred to a stool with three legs. If one of the legs is shorter, the stool is out of balance. These three elements must be in balance in the organization as well. 1

The study the three aspects is very significant as it is related to the achievements of goals and objectives set by management which will be carried out by the employees whose attitudes and morale can directly affect the financial outcomes and even the survival of their own company, as a result of the organizational architecture designed and made decisions by management board’s strategy. Among the three legs, the rewarding system is reminded in the fact that it can create backward effects when individual benefits are more observed than the business reputation as the case, in page 29 of the text, of Sue Chen’s, a Merrill Lynch sales person, whose utility function of money and integrity are challenged with the company picture being blurred by ethics melt- down trends when she only tries to obtain sweet bonus by resorting to any tactics possible to allure customers. Many companies wonder about which reward systems to be used: to set purely on the ''pay-for-results'' financial rewards or to focus on the evaluation of efforts and skills. While some are positive in mechanically determining the rewards using sophisticated programs such as the MAS200 information technology, a Sage accounting system that tracks the salespersons’ achievements through their financial transactions with customers In conclusion, organizational structures are highly concerned by managements as their purpose is to direct attitudes and morale of employees who are the direct impacts on the goal achievement given a set of inputs; for the ultimate performance. The three systems above must be in balance with each other regarding the relations of decision rights, incentives and performance evaluation for the desirable bottom line, when employees' compensation and business ethics are all on the right tracks.

Managerial Economics and Organizational Architectures, Brickley/Smith/Zimmerman pg-20-30 1Brickley, J., Jerold, Z., Jr., & Cliff, S. C. W., 2006

2. Explain economic Darwinism.

Darwinism is a traditional biological theory of evolution. As described in The Origin of species, natural history illustrates the principle of "Survival of the fittest". In the same way, Economic Darwinism put into notice that the firms of adequate architectures will have chances to stay strong in the competition while others cannot benefit from the same pay-offs if the businesses are ill-designed. Although there are slight differences between in the nature and business environment that organizations will be able to adapt to change, while the evolution of creatures are more by chance.

Many people who interpret Economic Darwinism is essentially a natural trend for the best entrepreneurs to survive and serve as good examples and to have others to follow, i.e. alternating their management architectures; may affirm that “When governments or big business tries to interfere with this process of natural selection by injecting funds into a fundamentally weak company and that company continues to do business that thwarting of the natural process will ultimately do more harm than good.1 More in details, while in nature a body cannot ''self-produces'' an organ or biological characteristic to affect the evolution determined by the nature; economic environments have witnessed CEOs, for example, are able to design company organizational structures, which...
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