GM 1 / Questions and Answers

Limited Liability Company

Why do companies grow?

• Transaction costs are smaller within companies.

• Most companies are public companies having a high market capitalization.

High market capitalization allows for capital increase and facilitates

acquisitions, thus, companies are growing.

Does an ETH student have a contract with ETH

• Yes the students have a contract with ETH regulating the payments and the

rules of education.

Describe the relations between Nestlé and Migros in terms of our simple model

• They are competitors

Describe the relationship between Intel and Microsoft

• They are comlementors

Principles of leadership

Why are non-personal decisions sometimes more important than personal decisions?

• They are free of emotion. Emotion can lead to bad decisions, as human beings

are not made for taking decisions in a complex situation.

What is the advantage to let students paricipate in decisions about ETHs future?

• Students have to some extend better insight of the educational and

administrational processes but have usually no time and no incentive to

improve efficiency. If they are motivated to participate in decisions ETH gain

additional insight and ideas how to improve thighs.

• When students participate actively in the decision making process they

support the outcome much better.

Why is it so difficult to teach good leadership?

• Leadership is a skill not a cognitive science.

Bounded Rationality

More and more knowledge is available on the Internet. Is this true?

• No, only more data is available. Knowledge has to be interpreted out for the

data provided by the Internet.

How have you learned to interpret the data your newspaper present every day?

• By experience. After having read hundreds of newspaper you are an expert in

reading and know how to focus on the stuff you want to extract. After years of

intensive training we become experts and most experts have some 50000

patterns stored in their mind thy recognize immediately.

What do you recommend a project team spread out over all of Europe to do when it

runs into difficulties?

• They should meet physically!

You ask management at Nestlé about the reasons for its success over the last 10 years.

What do you expect? Do you trust the answers?

• No, because they see history in a fare more rational way than they saw it in the

decision making process.

Rational Decisions

Give examples for decisions that are taken using the rational model and using the

garbage can model.

• Rational Model � Olympic model � e.g. medicine tested on the market and

released by the FDA

• Garbage Can Model � Managers of European companies to manufacture in

China for the reason of lowering the manufacturing costs.

According to which model selects ETH its medal winners among PhD students?

• Hopefully according to the Olympic model, garbage can model can not be

ruled out.

What is the role of emotions in decisions?

• Very important. Chess players relay on emotions in their decisions. �

knowledge of 50000 patterns.

MODELS and APPLICATION

Olympic Model: � Medicine

Behavior Model: � Military

Intuition: � Chess

Trial and Error:� human friendship

Basic types of organizational structures

Why does it take so long to build up an informal organization?

• Informal organization is tacit / no explicit rules

What type of organization has ETHZ

• Functional with divisions � Hybrid

organization

Name and describe 3 processes at ETHZ

• Strategy process: decision on research

topics and positioning of the ETH in

the landscape of universities.

• Innovation processes: budget planning for future research. Setting goals for

the education.

• Order-make-delivery process: educate the students. Hold exams. Evaluate

Professors and educational personnel.

Why do most businesses start with a functional organization?

• Easy to understand. Most suitable for small organization.

Basic Organizational Principles

Does organization structure appear on the organization chart?

• The organization structure is the formal decision-making framework by which

job tasks are divided, grouped, and coordinated. Formalization is an important

aspect of structure. It is the extent to which the units of the organization are

explicitly defined and its policies, procedures, and goals are clearly stated. It is

the official organizational structure conceived and built by top management.

The formal organization can be seen and represented in chart form. An

organization chart displays the organizational structure and shows job titles,

lines of authority, and relationships between departments. The informal

organization is the network, unrelated to the firm's formal authority structure,

of social interactions among its employees.

How is structure related to the organizations need for efficiency vs. its needs for

innovation and learning?

• Organizational dilemma: the more individual initiative (needed in innovation

and learning processes) the less coordination (needed for being efficient)

exists. The dilemma can be overcome by braking up the organization into

suitable modules and introduce hierarchy.

Describe a modular structure

• a modular organization structure is one in which each participating. resource

can function autonomously and concurrently, ...The SBU-organization is a

modular setup

The Value Chain and Individual Performance

What are the basic ingredients of Taylor’s Scientific Management?

• The relation between worker and management

• Bonus

• Recruiting

• Experts: improving the relation between worker and management

Why are banks still organized in front office and back office?

• It’s a matter of size. The front office should not grow on large sizes such that

they can still feel the market pressure

Is the organization of ABB object oriented or work oriented?

• ABB is work oriented – processes that need skills

Process Management

Why are processes so important?

• Processes are the fundament of efficiency

Is it possible to organize ETHZ along processes instead along scientific communities,

departments?

• No, ETHZ as a whle does not have processes that can be standardized and

improved regarding efficiency. However, on the department level the tasks

may be organized along processes.

Give a striking example of a process organization

• Post � highly process oriented with standard processes which are routinely

done every day

What are the 3 most important processes at ETHZ and why?

1. Strategic decisions: research topics and positioning of the ETHZ in the

landscape of the universities

2. Financing of Innovation: Budget planning for the future research and

commitment to future research topics

3. Education: fulfillment of the “Lehrauftrag” and HR: evaluation of Professors.

Corporate Governance

What is the original role of shareholders?

• Shareholders elect the board of directors to govern the business

• Shareholders provide the capital (risk capital)

• Shareholders renounce to get the capital back in a crisis

• Shareholders have the right to share profits

What does it mean that shareholders own a company?

• Shareholders do not really own a company � labor, technology knowledge

and people can’t be owned by a person

• The Shareholders provides the capital and can via the board of directors take

influence on the business process.

Explain some mechanism to overcome the information asymmetry between

management, board of directors and shareholders.

• Make top managers liable

• Detailed descriptions of what is allowed and what is not allowed � rules for

every detail

• CEO and CFO have to swear that the balance sheet is OK

• Share options � give incentives � align the interests of the agent and the

principal

In a functional organization, authority is determined by the

relationships between group functions and activities. Functional

structures group similar or related occupational specialties or

processes together under the familiar headings of finance,

manufacturing, marketing, accounts receivable, research,

surgery, and photo finishing. Economy is achieved through

specialization. However, the organization risks losing sight of its

overall interests as different departments pursue their own goals.

In a divisional organization, corporate divisions operate as

relatively autonomous businesses under the larger corporate

umbrella. In a conglomerate organization, divisions may be

unrelated. Divisional structures are made up of self-contained

strategic business units that each produces a single product. For

example, General Motors' divisions include Chevrolet,

Oldsmobile, Pontiac, and Cadillac. A central headquarters,

focusing or results, coordinates and controls the activities, and

provides support services between divisions. Functional

departments accomplish division goals. A weakness however, is

the tendency to duplicate activities among divisions.

Matrix structures utilize functional and divisional chains of command simultaneously in the same

part of the organization, commonly for one-of-a-kind projects. It is used to develop a new product, to

ensure the continuing success of a product to which several departments directly contribute, and to

solve a difficult problem. The matrix concept facilitates working on concurrent projects by creating a

dual chain of command, the project (program, systems, or product) manager and the functional

manager. An example is an aerospace firm with a contract from NASA. Matrix organizations are

particularly appealing to firms that want to speed up the decision-making process.

Hybrid organization is an organization whose structure is

comprised of both vertical and horizontal models.