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Organizational Theory (Chapter 1)

1. Describe the advantages of forming an organization.

Generally, an organization's shareholders are not liable for any debts incurred or judgments
handed down against the organization. Shareholders only risk their equity in the organization.
Forming organization may be able raise additional funds by selling shares in the organization.
Besides, forming organization may deduct the cost of benefits it provides to employees and
officers. Some organization may be able to elect treatment as an S corporation, which exempts
them from federal income tax other than tax on certain capital gains and passive income.
1. Describe the significance of the organizational structure.
The typically hierarchical arrangement of lines of authority, communications, rights and duties of
an organization. Organization structure determines how the roles, power and responsibilities are
assigned, controlled and coordinated and how information flows between the different levels of
management. A structure depends on the organizations objectives and strategy.
2. A large company was successful, but has been losing market share and laying of
workers. Product development has been slow. What could be the source of the
problem, and what and can be done to resolve it?
It is likely that the organization has neglected organizational design. Its structure and culture may
have worked well in the past, but both culture and structure need to be continually evaluated. The
organization needs to reevaluate both its structure and culture. To speed up product development
time, the organization could eliminate levels in the hierarchy and decentralize decision-making
authority. In addition, the structure can be designed to create cross-functional teams to increase
innovation and flexibility. In addition to changing the structure, the organization can foster a
culture that encourages innovation and risk taking.
3. Discuss the external resource approach to measuring organizational effectiveness.
The External Resource Approach is used to evaluate the organizations ability to secure, manage
and control scarce and valued skills and resources. External resource approach could lead to too
much focus on stock price and market share, and lead to inefficiencies and missed market
opportunities. For example, an external control approach, one goal might be to reach a market
share of 30%, or reducing material costs by 10% for the year.