Chapter 13: The Structure of the International Firm
TRUE/FALSE
1. A firm’s structure is the official manner in which the various tasks and parts of the business are to
interact, coordinate, and report with each other, and at what levels decisions are made.
2. Increasing the administrative component decreases the time needed to make decisions.
3. In a differentiation strategy, the focus is more on effectiveness and less on cost as it builds the firm’s
structure.
4. The classic problem for an entrepreneur is when and how to move away from a simple organizational
form to a more complex structure.
5. Agency theory was developed principally by researchers in economics and finance to highlight the fact
that individual employees will often act in the interest of their employer rather than in their own
self-interest.
6. The benefits of a multidivisional structure include the fact that the firm can avoid duplicating activities
and may benefit from scale economies in activities such as marketing and finance.
7. As firms internationalize, they typically prefer spending the money to open in a foreign location
initially rather than to export goods.
8. Typically, the functional structure is used by international firms that have operations in large numbers
of countries.
9. In an M-division structure, the firm is divided into different divisions, sometimes along product lines,
each of which has its own internal set of functional areas.
10. Maintaining some clear differences between divisions is an important component of proper
multidivisional structure.
11. If a firm wishes to obtain economies of scale and scope, it will need an organizational structure that
more closely links its divisions so that it can employ a global strategy more effectively.
12. An SBU is operated essentially like a separate business within the corporation.
13. The multidivisional is the most complicated of all the organizational structures.
14. An SBU results in an employee having two managers, which can lead to conflict.
15. The matrix structure can work particularly well in settings where there are highly trained and highly
skilled workers.
16. A large organization with activities strongly related to each other is expected to have a matrix structure
based either on customers or geography.
17. Economies of scope occur when cost savings result from performing two activities jointly.
18. If a firm is involved in a set of countries that can also be subdivided into distinct cultures, then it may
be best to have a divisional structure to address each one.
19. Organic structures are those that are focused on stability and hierarchical decision making.
20. A mechanistic structure is one that is more flexible, innovative, and able to adapt to its environment.
21. In environments where change is rapid, an organizational structure needs to able to adapt and respond
as quickly as the environment.
22. Individuals always make better decisions than teams in complex or ambiguous settings.
23. From Senge’s perspective, success comes from an organic organization that fully engages individuals
and permits experimentation.
24. Process management rests on the assumption that over time businesses create and build up processes
that no longer establish value for the firm and may even hinder its business.
25. Informal organizations are the unofficial connections that exist among individuals in a business.
MULTIPLE CHOICE
1. Which of the following statements about organizational structure is false?
a.
A firm’s structure changes to support expansion strategies in order to attain scale
economies with multiple locations.
b.
The strategy–structure relationship is a one-way street.
c.
Strategy is central to choosing the appropriate organizational structure for a firm.
d.
Firm structure needs to fit with the firm’s degree of internationalization to be successful.
2. The _____ is the proportion of support staff to line workers.
a.
organic component
b.
operational component
c.
mechanistic component
d.
administrative component
3. Which of the following argues that work expands to fill the time available?
a.
Parkinson’s Law
b.
Hofstadter’s Law
c.
Chandler’s Law
d.
Sloan’s Law
4. Increasing the administrative component:
a.
facilitates communication among departments.
b.
impedes planning, coordination, and training.
c.
increases the time needed to make decisions.
d.
increases commitment to the organization as a whole.
5. If a firm has staked out a low-cost position, it:
a.
needs to focus more on procuring low-cost labor.
b.
needs to ensure that efficiency is the principal focus of its structure.
c.
must focus on the ‘one best method’ of doing a particular task.
d.
needs to focus more on the effectiveness of its structure.
6. A _____ organizational structure is typical of new ventures.
a.
functional
b.
matrix
c.
divisional
d.
simple
7. According to the text, the simple organizational structure is often associated with:
a.
specialty businesses.
b.
family-owned businesses.
c.
state-owned businesses.
d.
minority-owned businesses.
8. _____ was developed principally by researchers in economics and finance to highlight the fact that
individual employees will often act in their own self-interest rather than in the interest of their
employer.
a.
Strategic choice theory
b.
Institutional theory
c.
Agency theory
d.
Contract theory
9. Which of the following statements about the typical organizational form of businesses owned by
Overseas Chinese is false?
a.
The complex structure works well for Overseas Chinese businesses due to the nature of
the decisions that are required.
b.
The head of the organization is typically the family patriarch who sits at the center of the
organization.
c.
Some organizations owned by Overseas Chinese are quite large, in contrast to
entrepreneurial organizations.
d.
Individuals in the organization typically look for direction from the organization’s head.
10. What is the benefit of a functional structure?
a.
Each division can operate more efficiently in a given business area.
b.
Employees become more engaged with the firm as a whole.
c.
Employees focus more on their functional areas.
d.
The firm can avoid duplicating activities.
11. What is the risk of a functional structure?
a.
The firm cannot avoid duplicating activities.
b.
Employees begin to focus more on their functional areas.
c.
The extra layer of management causes some divisions to work at cross purposes.
d.
The firm does not achieve economies of scale in activities such as marketing.
12. Typically, the _____ structure is not used by international firms that have operations in large numbers
of countries.
a.
functional
b.
matrix
c.
multidivisional
d.
SBU
13. As a firm grows it may find that the various parts of the business are too large to effectively coordinate
with a simple functional structure. In this case, the firm develops a(n):
a.
SBU.
b.
matrix structure.
c.
multidivisional structure.
d.
entrepreneurial structure.
14. Which of the following statements about M-division firms is true?
a.
The early M-division firms first emerged in the late 1900s.
b.
The M-division structure is closely associated with Alfred Chandler.
c.
In an M-division structure, the firm is divided into a few functional areas.
d.
Using their size, M-division firms were able to cut costs.
15. What is the drawback of a divisional structure?
a.
It duplicates many functional skills.
b.
The close monitoring of items such as expenses may no longer occur.
c.
It is difficult to achieve scale economies in activities such as marketing and finance.
d.
It can often hinder growth because the founder is limited in his/her ability to address
numerous firm details.
16. A(n) _____ is a separate company made from a prior division.
a.
merger
b.
spin-off
c.
shakeout
d.
buyout
17. A _____ is a business division within a larger firm that is charged with managing a particular category
of product or service.
a.
spin-off
b.
matrix structure
c.
strategic business unit
d.
functional structure
18. What is the benefit of an SBU?
a.
Typically, the founder/CEO is not an isolated entity but someone the employees know
intimately.
b.
The CEO can closely monitor all actions to ensure that the business achieves all of its
goals.
c.
Most employees report to the CEO directly.
d.
Greater ease and speed in decision making.
19. A(n) _____ organizational structure is a hybrid structure, combining different organizational forms.
a.
matrix
b.
divisional
c.
spin-off
d.
SBU
20. A matrix structure is beneficial because:
a.
the CEO is not an isolated entity but someone the employees know intimately.
b.
it allows fast decision making by tying different aspects of the business together.
c.
it can work particularly well in settings where there are moderately trained and moderately
skilled workers.
d.
it results in an employee having two managers, which can lead to better decision making.
21. _____ exist when the average unit costs of a good or service decline as the quantity produced
increases.
a.
Economics of agglomeration
b.
Economies of scope
c.
Economies of scale
d.
Returns to scale
22. _____ are cost savings that result from performing two activities jointly.
a.
Returns to scale
b.
Economies of scale
c.
Economics of agglomeration
d.
Economies of scope
23. _____ are structures that are focused on stability and hierarchical decision making.
a.
Mechanistic structures
b.
Organic structures
c.
Nonbureaucratic structures
d.
Joint specialization structures
24. A(n) _____ structure is one that is flexible, innovative, and able to adapt to its environment.
a.
mechanistic
b.
organic
c.
bureaucratic
d.
individualistic
25. _____ rests on the assumption that over time businesses create and build up processes that no longer
establish value for the firm and may even hinder its business.
a.
Process management
b.
Six Sigma
c.
Reengineering
d.
Total quality management
ESSAY
1. Write a detailed note on a simple organizational structure.
2. What is a functional organizational structure?
3. What is an SBU? What are the benefits and risks of an SBU?
4. What is a matrix organizational structure? What are the benefits and risks of a matrix structure?
5. Explain economies of scale and economies of scope.
6. Explain mechanistic structures and organic structures.
ANS:
7. Write a short note on a learning organization.