Chapter 12: Decision Rights: The Level of Empowerment

1. Chapter 12: Decision Rights:The Level of Empowerment Brickley, Smith, and Zimmerman, Managerial Economics and Organizational Architecture, 4th ed.

2. Decision Rights-empowermentlearning objectives • Define and apply the concept of decision authority • State and provide examples of costs and benefits of decentralized decision making • State and provide examples of costs and benefits of team decision making

3. Assigning tasks and decision rights • Production process involves tasks bundled into jobs • Job dimensions • variety of tasks • few or many • decision authority • limited or broad

4. Dimensions of job design

5. Centralization versus decentralizationbenefits of decentralization • Effective use of local knowledge • local tastes and preferences • price sensitivities of particular customers • Conservation of management time • senior management focus on strategy • Training and motivation for local managers

6. Centralization versus decentralizationcosts of decentralization • Potential agency problems • effective control systems may be expensive • Coordination costs and failures • Less effective use of central information

7. Benefits and costs of team decision making • Benefits of team decision making • improved use of dispersed specific knowledge • Employee buy-in • Costs of team decision making • collective-action problems • free-rider problems • Use teams if benefits exceed costs

8. Decision management Initiation Implementation Decision control Ratification Monitoring Decision management and controlFama-Jensen

9. Influence costs • Employees have incentives to influence managerial decisions • Influence activities may entail costs • time away from the job • dysfunctional activities • Limits on managerial discretion may reduce influence costs