Organizational Architecture, The Brickley, Smith, Zimmerman Approach

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Organizational Architecture,The Brickley, Smith,
Zimmerman Approach

• ManEc 300
• Brother Bryson

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The Fundamental Problem

• The information necessary to make important
  decisions is held by many different people
• Actors may not only lack the needed information
  to make good decisions. They may not have the
  right motives or incentives to choose properly or
  to implement their choices.
• Firms and economic systems must be designed to
  make sure agents have the right information and
  incentives.

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Organizational architectureis organizational
design

• Organizational designs three main aspects
• 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

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Determinants of the Business Strategy,
Organizational Architecture, and Firm Value

• The Business Environment impacts the firms
  strategy.
• Environment includes
• Technology
• Computers
• Telecommunications
• Production methods

• Markets
• Competitors
• Customers
• Suppliers
• Regulation
• Taxes
• Antitrust
• International

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Determinants of the Business Strategy,
Organizational Architecture, and Firm Value

• The Strategy of the Firm is affected by the
  business environment. Strategy, in turn, affects
  the organizational design.
• Strategy includes
• Increasing demand
• Capturing value
• Choosing the basis for competition
• (price, quality, service)

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Determinants of the Business Strategy,
Organizational Architecture, and Firm Value

• The organizational architecture of the firm is
  strongly influenced by the firms strategy. The
  organizational design, in turn, affects the
  incentives and actions of the players.
• Organizational design includes
• Decision-right assignment
• Reward system
• Performance-evaluation system

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Determinants of the Business Strategy,
Organizational Architecture, and Firm Value

• Organizational architecture, in turn, affects the
  incentives and actions of the players.
• The actions of individuals responding to the
  organizations incentive effects determine the
  value of the firm.

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Changing the Organizational Structure

• Changing the business environment or the strategy
  of the firm will probably call for a change in
  the organizational architecture.
• But change should be undertaken only when the
  associated benefits exceed the costs of
  reorganizing.

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Costs of Organizational Change

• Direct costs may be considerable when the firms
  accounting and information systems have to be
  modified for new
• evaluation procedures, etc.
• Indirect costs may be even more
• important. Architecture changes can affect the
  incentives of employees positively or negatively,
  and their attitudes and actions largely determine
  the value of the firm.

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Corporate Culture

• Corporate culture is
• how work and authority are organized and how
  people are directed and rewarded.
• the corporations features, including customs,
  slogans, heroes, taboos, and social rituals.

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Corporate Culture and Organizational Architecture

• Managers can affect corporate culture, which is
  obviously related to organization design, through
  deliberate actions. Changing the architecture
  impacts on the culture, just as a changing
  environment can.
• Changes to superficial things can impact
  corporate culture indirectly, but changes to the
  organizational design have direct impact.