TBChap 014

Chapter 14
The Organization of International Business
True / False Questions
1. Organizational structure refers to the totality of a firm's organization.
True False
2. A manager receives a bonus because the national operating subsidiary, that she is in charge of,
exceeds its performance target. This is an example of an incentive.
True False
3. A decentralized organization allows managers to respond to environmental changes more quickly

than in a centralized organization.
True False
4. The choice between centralization and decentralization is not absolute.
True False
5. Beyond the initial functional division of the organization, further horizontal differentiation may be
required if the firm significantly diversifies its product offering, which takes the firm into different
business areas.
True False
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Education.
6. In a worldwide area structure, each area tends to be a self-contained, largely autonomous entity with
its own set of value creation activities.
True False
7. In a worldwide product divisional structure, each division is a self-contained, largely autonomous entity
with full responsibility for its own value creation activities.
True False
8. The worldwide product division structure facilitates local responsiveness.
True False
9. It is difficult to ascertain accountability in the global matrix structure.
True False
10. The need for coordination between units is greatest in firms pursuing a localization strategy.
True False
11. Direct contact between subunit managers is the simplest integrating mechanism.
True False
12. A knowledge network is a network for transmitting information within an organization that is based on
formal organizational structure.
True False
13. Bureaucratic control involves personal contact with subordinates.
True False
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14. The basic principle behind incentive systems is to ensure that the incentive scheme for an individual
employee is linked to an output target that he or she has some control over and can influence.
True False
15. Performance ambiguity lowers the cost of control.
True False
16. New processes that might lead to a competitive advantage can be developed anywhere within the
organization's global network of operations.
True False
17. Norms are abstract ideas about what a group believes to be good, right, and desirable.
True False
18. An organizational culture can be strong but bad.
True False
19. Firms pursuing a localization strategy tend to operate with an array of formal and informal integrating
mechanisms.
True False
20. National regulations including local content rules and policies pertaining to layoffs might act as a
source of inertia.
True False
21. It is important to realize that organizational change will occur regardless of the commitment of senior
managers to it.
True False
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Education.
22. Refreezing an organization should happen quickly.
True False
Multiple Choice Questions
23. A firm's organizational culture refers to the:
A. norms and value systems that are shared among the employees of an organization.
B. formal organizational structure of the company.
C. control systems and incentives in place.
D. human resources component.
24. A firm's _____ determines where in its hierarchy the decision-making power is concentrated.
A. organizational architecture
B. vertical differentiation
C. organizational structure
D. horizontal differentiation
25. By centralizing decision making, a firm:
A. allows managers to respond to environmental changes more quickly.

B. runs the risk of not being able to respond to environmental changes quickly.
C. can avoid the duplication of activities that occurs when similar activities are carried on by various
subunits within the organization.
D. often has issues with duplication of activities that occurs when similar activities are carried on by
various subunits within the organization.
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26. _____ gives top-level managers the power and authority to be able to bring about needed major
organizational changes.
A. Personal control
B. Decentralization
C. Bureaucratic control
D. Centralization
27. A firm pursuing a(n) _____ will have a strong incentive to decentralize decision-making.
A. localization strategy
B. transnational strategy
C. global standardization strategy
D. international strategy
28. In firms pursuing a(n) _____, some operating decisions are relatively centralized, while others are
relatively decentralized.
A. global standardization strategy

C. localization strategy
29. Regardless of a firm's domestic structure, its international division tends to be:
A. organized on economy.
B. decentralized.
C. organized on geography.
D. centralized.
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30. The _____ tends to be adopted by firms with a low level of diversification whose domestic structures
are based on functions.
A. global matrix structure

B. worldwide product division structure
C. performance structure
D. worldwide area structure
31. A _____ tends to be adopted by firms that are reasonably diversified and originally had domestic
structures based on product divisions.
A. worldwide product division structure

B. global matrix structure
C. worldwide area structure
D. performance structure
32. In a _____, individual managers belong to two hierarchies (a divisional hierarchy and an area hierarchy)
and have two bosses (a divisional boss and an area boss).

B. classic matrix structure
33. The need for coordination is high in:
A. firms trying to pursue localization strategies.

B. international firms.
C. firms trying to profit from location and experience curve economies.
D. domestic corporations.
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34. In a _____ all roles are viewed as integrating roles.
A. worldwide area structure

B. process structure
C. worldwide product division structure
D. global matrix structure
35. _____ is a type of control that tends to be most widely used in small firms.
A. Personal control
B. Output control
D. Cultural control
36. In a company using _____, employees tend to control their own behavior, which reduces the need for
direct supervision.
A. bureaucratic controls
B. cultural controls
C. personal controls
D. output controls
37. _____ can be defined as the amount of time top management must devote to monitoring and
evaluating subunits' performance.
A. Performance ambiguity
B. The formal matrix
C. The costs of control
D. Differentiation
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38. Firms pursuing a global standardization strategy must cope with a higher level of _____, and this raises
their costs of control.
A. vertical differentiation
B. cultural division
C. horizontal differentiation
D. performance ambiguity
39. Which of the following is more difficult for a leader?
A. To change an established organizational culture

B. To import an organizational culture
C. To create an organizational culture from scratch in a new venture
D. To export an organizational culture
40. Firms pursuing a(n) _____ have a low need for coordination between subunits.

B. localization strategy
C. transnational strategy
41. Firms pursuing a(n) _____ are more centralized than enterprises pursuing a localization or international
strategy.
B. international strategy
D. transnational strategy
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42. Because of inertia forces, _____ is often no change.
A. big bang change

B. cultural change
C. shock therapy change
D. incremental change
43. To unfreeze the established culture of an organization, the company:
A. must take bold steps such as shaking up the management structure in order to implement change.
B. is best served by taking incremental steps.
C. should employ the existing structural organization to integrate changes.
D. implement a rewards or incentive program.
44. Organizational structure includes several elements. Which of the following is one of them?
A. The establishment of integrating mechanisms to coordinate the activities of subunits.

B. The horizontal decision-making that occurs daily, for example, on the plant floor to improve
operations.
C. The manner in which decisions are made and work is performed by individuals.
D. The informal division of the organization into cultural groups.
45. Which of the following terms refers to the metrics used to measure the performance of subunits and
make judgments about how well managers are running those subunits?
A. Key processes
B. Control systems
C. Knowledge networks
D. Job assignments
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46. Historically, Unilever measured the performance of national operating subsidiary companies according
to profitability. In this example, profitability is a(n) _____.
A. control system
B. process
C. integrating mechanism
D. incentive
47. The manner in which decisions are made and work is performed within the organization is known as
the firm's _____.
A. organizational culture
B. incentives
C. control systems
D. processes
48. The norms and values systems that are shared among the employees of a company are referred to as
_____.
A. processes
B. control systems
C. incentives
D. organizational culture
A. integrating mechanism
C. knowledge network
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50. What is horizontal differentiation?
A. The mechanisms that enable each subunit to operate independently

B. The formal division of the organization into subunits
C. The location of decision-making responsibilities within a structure
D. The mechanisms for coordinating subunits
51. Integration mechanisms are the:
A. formal division of the organization into subunits.

B. mechanisms that enable each subunit to operate independently.
C. mechanisms for coordinating subunits.
D. location of decision making responsibilities within a structure.
52. Which of the following is an argument favoring centralization?
A. It permits greater flexibility.

B. Motivational research favors it.
C. It can avoid the duplication of activities.
D. It gives top management time to focus on critical issues by delegating routine issues to lower-level
managers.
53. Which of the following is an argument favoring decentralization?
A. It can facilitate coordination.

B. It can help ensure that decisions are consistent with organizational objectives.
C. It can give top-level managers the means to bring about needed major organizational changes.
D. It permits greater flexibility.
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54. Centralization:
A. gives top management time to focus on critical issues by delegating more routine issues to lower-
level managers.
B. can give top-level managers the means to bring about needed major organizational changes by
concentrating power and authority in one individual or a management team.
C. permits greater flexibility because decisions do not have to be "referred up the hierarchy" unless
they are exceptional in nature.
D. can be used to establish relatively autonomous, self-contained subunits within an organization.
55. A firm that needs greater flexibility should choose _____ for its decision-making.
A. horizontal differentiation
B. decentralization
D. control systems
56. Centralization and decentralization differ because:
A. centralization hinders coordination, while decentralization facilitates coordination.

B. centralization prevents top-level managers from making required organizational changes, while
decentralization gives top-level managers greater power to make organizational changes.
C. centralization ensures that decisions are consistent with organizational objectives, while
decentralization can result in decisions at variance with organizational goals.
D. centralization promotes flexibility, while decentralization reduces flexibility.
57. Which of the following decisions is typically centralized at a firm's headquarters?
A. Production decisions
B. Human resource management
C. Marketing decisions
D. Overall firm strategy
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58. The emphasis on local responsiveness in firms pursuing a localization strategy creates strong pressures
for:
A. centralizing all decisions regarding marketing, R&D, and human resource management.
B. decentralizing operating decisions to foreign subsidiaries.
C. centralizing all operating decisions.
D. global learning.
59. Global learning based on the multidirectional transfer of skills between subsidiaries and the corporate
center is a central feature of a firm pursuing a(n) _____ strategy.
A. localization
B. global standardization
C. transnational
D. international
60. Which of the following would be a typical responsibility of a product division in a worldwide product
divisional structure?
A. Operating decisions
B. Overall strategic development of the firm
C. Financial control of the various divisions
D. Decisions regarding legal issues
61. Which of the following statements is true about a product divisional structure?
A. In a product divisional structure, the responsibility for the financial control of the firm is typically
decentralized.
B. A product divisional structure tends to be organized on geography.
C. In a product divisional structure, each product division is set up as a self-contained, largely
autonomous entity with its own functions.
D. In a product divisional structure, the responsibility for operating decisions is typically centralized.
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62. Regardless of a firm's domestic structure, its international division tends to be organized on _____.
A. product
B. geography
C. people
D. economy
63. Which of the following is a problem that arises due to an international division structure?
A. In an international division structure, a firm's international division tends to be organized on

products.
B. The heads of domestic functions are presumed to be able to represent the interests of all countries
to headquarters.
C. The heads of foreign subsidiaries are not given as much voice in the organization as the heads of
domestic functions or divisions.
D. The dual-hierarchy structure can lead to conflict and perpetual power struggles between the areas
and the product divisions.
64. In which of the following organizational structures are the domestic operations and foreign operations
isolated from each other leading to coordination problems?
A. Global matrix structure

B. International division structure
C. Worldwide product division structure
D. Worldwide area structure
65. Which of the following is true regarding a worldwide area structure?
A. It tends to be favored by firms with a high degree of diversification.

B. It inhibits local responsiveness.
C. It tends to be favored by firms with a domestic structure based on functions.
D. Decision-making responsibilities are centralized.
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66. A _____ encourages fragmentation of the organization into highly autonomous entities.

C. worldwide product structure
D. global network structure
67. A(n) _____ tends to be adopted by firms that are reasonably diversified.

B. international division structure
68. The worldwide product division structure:
A. is weak in local responsiveness.

B. inhibits the realization of location economies.
C. inhibits the realization of experience curve economies.
D. limits the transfer of core competencies between areas.
69. In the classic global matrix structure, horizontal differentiation proceeds along two dimensions. These
dimensions are:
A. hierarchy and overall strategy.

B. target returns and sales potential.
C. marketing strategy and sales potential.
D. product division and geographic area.
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70. In practice, the dual-hierarchy in a global matrix structure:
A. lessens all forms of conflict.

B. makes it easy to ascertain accountability.
C. results in extremely quick decision making.
D. can lead to perpetual power struggles.
71. The need for coordination between subunits is lowest in firms pursuing a(n) _____.
C. global strategy
72. The need for coordination between subunits is highest in firms pursuing a(n) _____.
C. global strategy
73. _____ refers to giving a person in each subunit responsibility for coordinating with another subunit on a
regular basis.
A. Global learning
B. Liaison roles
C. Knowledge network
D. Matrix Structures
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74. A(n) _____ is valuable because it can be used as a nonbureaucratic conduit for information flows within
a multinational enterprise.
A. liaison network
B. matrix structure
D. knowledge network
75. Which control system is most widely used by small firms?
A. Personal
B. Output
C. Bureaucratic
D. Cultural
76. Control through a system of rules and procedures that directs the actions of subunits is _____.
A. personal control
B. bureaucratic control
C. output control
D. cultural control
77. _____ control is achieved by comparing actual performance against targets and intervening selectively
to take corrective action.
A. Personal
B. Output
C. Bureaucratic
D. Cultural
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78. There is low interdependence, performance ambiguity, and costs of control in firms pursuing a(n)
_____.
D. global strategy
79. Which of the following is true of a strong corporate culture?
A. Almost all managers share a relatively consistent set of values and norms that have a clear impact
on the way work is performed.
B. A strong culture leads to high performance.
C. Outsiders see firms with a strong culture as being autocratic and inflexible.
D. A strong culture is always a good culture.
80. Firms pursuing a(n) _____ attempt to create value by transferring core competencies from home to
foreign subsidiaries.
D. global strategy
81. Firms pursuing a global standardization strategy:
A. have low performance ambiguity.

B. attempt to create value by transferring core competencies from home to foreign subsidiaries.
C. are less centralized than enterprises pursuing a localization or international strategy.
D. have a high need for coordination and cultural controls.
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82. A firm that operates with matrix-type structures in which both product divisions and geographic areas
have significant influence would use which of the following strategies?
A. International strategy
B. Transnational strategy
C. Global strategy
D. Localization strategy
83. Firms pursuing a transnational strategy:
A. have a low need for coordination.

B. require very few integrating mechanisms.
C. have a very high need for cultural controls.
D. operate with a worldwide product division structure.
84. Which of the following is an effective strategy for implementing organizational change?
A. Physically move the organization to a new state.

B. Keep the organizational structure.
C. Refreeze the organizational structure.
D. Slowly, through incremental changes, rearrange the organizational structure.
85. _____ refers to the location of decision-making responsibilities within a structure.
A. Vertical differentiation
B. Integrating mechanisms
C. Horizontal integration
D. Horizontal differentiation
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86. What type of control system uses a system of rules and procedures that directs the actions of
subunits?
A. Personal controls
B. Bureaucratic controls
C. Cultural controls
D. Output controls
87. Which of the following is a potential drawback of the worldwide area structure?
A. This structure discourages division of the organization into autonomous entities.

B. This structure makes it difficult to decentralize decisions regarding operations authority.
C. This structure makes it difficult to realize location and experience curve economies.
D. This structure reduced local responsiveness.
88. The establishment of integrating mechanisms that coordinate subunits is a dimension of _____.
B. organizational culture
C. vertical differentiation
D. organizational structure
89. In Firm A, each division is a self-contained, largely autonomous entity with full responsibility for its own
value creation activities. What type of structure does Firm A employ?
A. Worldwide product division structure

B. Global matrix structure
C. Worldwide area structure
D. Knowledge network structure
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90. In the _____, the philosophy is that responsibility for operating decisions pertaining to a particular
product should be shared by the product division and the various areas of the firm.

B. classic global matrix structure
D. knowledge network structure
91. When the need for integration is very high, firms may:
A. use direct contact between subunit managers.

B. give a person in each subunit responsibility for coordinating with another subunit on a regular basis.
C. institute a matrix structure, in which all roles are viewed as integrating roles.
D. use temporary or permanent teams composed of individuals from the subunits that need to achieve
coordination.
92. _____ is achieved by comparing actual performance against targets and intervening selectively to take
corrective action.
A. Personal control
B. Cultural control
D. Output control
93. _____ exists when the causes of a subunit's poor performance are not clear.
B. Vertical differentiation
C. Output controls
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94. _____ are the metrics used to measure the performance of subunits and make judgments about how
well managers are running those subunits.
A. Cultural controls
B. Control systems
C. Output controls
D. Incentives
95. Which of the following is a disadvantage of a worldwide area structure?
A. Firms that use this structure tend to have a high degree of diversification.
B. Decision-making is centralized and subsidiaries cannot customize to local marketing needs.
C. The fragmentation of the organization that makes it difficult to realize location and experience curve
economies.
D. It does not facilitate local responsiveness.
Essay Questions
96. Explain organizational structure.
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Education.
97. Why should a firm centralize its decision-making?
98. Explain the five reasons why a firm should decentralize its decision-making.
99. Discuss the location of decision-making in a firm that is following a transnational strategy.
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Education.
100. Describe the situation where an international division makes sense. How common is this structure?
What are the disadvantages of the structure?
101. What are the main strengths and weaknesses of the worldwide product division structure?
102. What is a knowledge network? What is the advantage of such a system?
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103. Consider the use of personal controls in international firms. In which type of firm is this control most
common?
104. Discuss the characteristics of a firm that is pursuing an international strategy.
105. Discuss the sources of inertia in organizations. Is it easy to make organizational changes?
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106. What are the basic principles for successful organizational change?
107. Discuss the issues involved in unfreezing an organization.
108. Discuss the issues involved in refreezing an organization.
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Chapter 14 The Organization of International Business Answer Key
True / False Questions
1. Organizational structure refers to the totality of a firm's organization.
FALSE
Organizational architecture refers to the totality of a firm's organization. Organizational structure

refers to three things. First, the formal division of the organization into subunits; second, the
location of decision-making responsibilities within that structure; and third, the establishment of
integrating mechanisms.
AACSB: Knowledge Application

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 14-01 Explain what is meant by organizational architecture.
Topic: Overview of Organizational Structure and Design
2. A manager receives a bonus because the national operating subsidiary, that she is in charge of,
exceeds its performance target. This is an example of an incentive.
TRUE
Incentives are the devices used to reward appropriate managerial behavior. Incentives are very
closely tied to performance metrics.

Blooms: Understand
Difficulty: 2 Medium
Gradable: automatic
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Education.
3. A decentralized organization allows managers to respond to environmental changes more quickly
than in a centralized organization.
TRUE
Decentralization permits greater flexibility—more rapid response to environmental changes—

because decisions do not have to be "referred up the hierarchy" unless they are exceptional in
nature.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Forms Available for Structuring International Companies
4. The choice between centralization and decentralization is not absolute.
TRUE
Decisions regarding overall firm strategy, major financial expenditures, financial objectives, and
legal issues are typically centralized at the firm's headquarters. However, operating decisions, such
as those relating to production, marketing, R&D, and human resource management, may or may
not be centralized depending on the firm's strategy.

Blooms: Apply
Gradable: automatic
14-28
Education.
5. Beyond the initial functional division of the organization, further horizontal differentiation may be
required if the firm significantly diversifies its product offering, which takes the firm into different
business areas.
TRUE
Further horizontal differentiation may be required if the firm significantly diversifies its product
offering, which takes the firm into different business areas. Problems of coordination and control
arise when different business areas are managed within the framework of a functional structure.

Blooms: Understand
Gradable: automatic
6. In a worldwide area structure, each area tends to be a self-contained, largely autonomous entity
with its own set of value creation activities.
TRUE
Under the worldwide area structure, the world is divided into geographic areas. An area may be a
country or a group of countries. Each area tends to be a self-contained, largely autonomous entity
with its own set of value creation activities.

Blooms: Understand
Gradable: automatic
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Education.
7. In a worldwide product divisional structure, each division is a self-contained, largely autonomous
entity with full responsibility for its own value creation activities.
TRUE
In a worldwide product division each division is a self-contained, largely autonomous entity with full
responsibility for its own value creation activities.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
8. The worldwide product division structure facilitates local responsiveness.
FALSE
The main problem with the worldwide product division structure is the limited voice it gives to area
or country managers, since they are seen as subservient to product division managers. The result
can be a lack of local responsiveness, which can lead to performance problems.

Blooms: Apply
Gradable: automatic
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Education.
9. It is difficult to ascertain accountability in the global matrix structure.
TRUE
The dual hierarchy in the global matrix structure can lead to conflict and perpetual power struggles
between the areas and the product divisions, catching many managers in the middle. To make
matters worse, it can prove difficult to ascertain accountability in this structure.

Blooms: Apply
Gradable: automatic
10. The need for coordination between units is greatest in firms pursuing a localization strategy.
FALSE
The need for coordination is lowest in firms pursuing a localization strategy, is higher in
international companies, higher still in global companies, and highest of all in transnational
companies. Firms pursuing a localization strategy are primarily concerned with local responsiveness.

Blooms: Understand
Gradable: automatic
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Education.
11. Direct contact between subunit managers is the simplest integrating mechanism.
TRUE
Direct contact between subunit managers is the simplest integrating mechanism. By this
"mechanism," managers of the various subunits simply contact each other whenever they have a
common concern. Direct contact may not be effective if the managers have differing orientations
that act to impede coordination.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
12. A knowledge network is a network for transmitting information within an organization that is based
on formal organizational structure.
FALSE
A knowledge network is a network for transmitting information within an organization that is based
not on formal organization structure, but on informal contacts between managers within an
enterprise and on distributed information systems.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
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Education.
13. Bureaucratic control involves personal contact with subordinates.
FALSE
Bureaucratic control is control through a system of rules and procedures that directs the actions of
subunits. The most important bureaucratic controls in subunits within multinational firms are
budgets and capital spending rules.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
14. The basic principle behind incentive systems is to ensure that the incentive scheme for an individual
employee is linked to an output target that he or she has some control over and can influence.
TRUE
The basic principle is to make sure the incentive scheme for an individual employee is linked to an
output target that he or she has some control over and can influence. The individual employees on
the factory floor may not be able to exercise much influence over the performance of the entire
operation, but they can influence the performance of their team, so incentive pay is tied to output
at this level.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
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Education.
15. Performance ambiguity lowers the cost of control.
FALSE
The costs of control can be defined as the amount of time top management must devote to
monitoring and evaluating subunits' performance. This is greater when the amount of performance
ambiguity is greater.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
16. New processes that might lead to a competitive advantage can be developed anywhere within the
organization's global network of operations.
TRUE
It is particularly important for a multinational enterprise to recognize that valuable new processes
that might lead to a competitive advantage can be developed anywhere within the organization's
global network of operations. New processes may be developed by a local operating subsidiary in
response to conditions pertaining to its market.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
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Education.
17. Norms are abstract ideas about what a group believes to be good, right, and desirable.
FALSE
Values are abstract ideas about what a group believes to be good, right, and desirable. Norms
mean the social rules and guidelines that prescribe appropriate behavior in particular situations.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
18. An organizational culture can be strong but bad.
TRUE
Strong does not necessarily mean good. A culture can be strong but bad. The culture of the Nazi
Party in Germany was certainly strong, but it was most definitely not good.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
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Education.
19. Firms pursuing a localization strategy tend to operate with an array of formal and informal
integrating mechanisms.
FALSE
Firms pursuing a localization strategy do not have a high need for integrating mechanisms, either
formal or informal, to knit together different national operations. The lack of interdependence
implies that the level of performance ambiguity in such enterprises is low, as (by extension) are the
costs of control.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 14-03 Explain how organization can be matched to strategy to improve the performance of an international
business.
Topic: Matching Organizations to Strategy to Improve Performance
20. National regulations including local content rules and policies pertaining to layoffs might act as a
source of inertia.
TRUE
Institutional constraints might also act as a source of inertia. National regulations including local
content rules and policies pertaining to layoffs might make it difficult for a multinational to alter its
global value chain.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 14-04 Discuss what is required for an international business to change its organization so that it better matches its
strategy.
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Education.
21. It is important to realize that organizational change will occur regardless of the commitment of
senior managers to it.
FALSE
It is important to realize that change will not occur unless senior managers are committed to it.
Senior managers must clearly articulate the need for change so employees understand both why it
is being pursued and the benefits that will flow from successful change.

Blooms: Understand
Gradable: automatic
strategy.
22. Refreezing an organization should happen quickly.
FALSE
Refreezing the organization takes longer. It may require a new culture be established while the old
one is being dismantled.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
strategy.
Multiple Choice Questions
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Education.
23. A firm's organizational culture refers to the:
A. norms and value systems that are shared among the employees of an organization.
B. formal organizational structure of the company.
C. control systems and incentives in place.
D. human resources component.
Organizational culture refers to the norms and value systems that are shared among the employees
of an organization.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Topic: Organizational Architecture
A. organizational architecture
Vertical differentiation refers to the location of decision-making responsibilities within a structure.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
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Education.
25. By centralizing decision making, a firm:
A. allows managers to respond to environmental changes more quickly.

B. runs the risk of not being able to respond to environmental changes quickly.
C. can avoid the duplication of activities that occurs when similar activities are carried on by
D. often has issues with duplication of activities that occurs when similar activities are carried on by
Centralization can avoid the duplication of activities that occurs when similar activities are carried
on by various subunits within the organization.

Blooms: Apply
Gradable: automatic
Topic: Organizational Structure
26. _____ gives top-level managers the power and authority to be able to bring about needed major
organizational changes.
A. Personal control
B. Decentralization
D. Centralization
By concentrating power and authority in one individual or a management team, centralization can
give top-level managers the means to bring about needed major organizational changes.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
14-39
Education.
27. A firm pursuing a(n) _____ will have a strong incentive to decentralize decision-making.
The emphasis on local responsiveness in firms pursuing a localization strategy creates strong
pressures for decentralizing operating decisions to foreign subsidiaries.

Blooms: Apply
Gradable: automatic
28. In firms pursuing a(n) _____, some operating decisions are relatively centralized, while others are
relatively decentralized.

The situation in firms pursuing a transnational strategy is complex. In firms pursuing a transnational
strategy, some operating decisions are relatively centralized, while others are relatively
decentralized.

Blooms: Apply
Gradable: automatic
14-40
Education.
29. Regardless of a firm's domestic structure, its international division tends to be:
A. organized on economy.
B. decentralized.
C. organized on geography.
D. centralized.
Regardless of the firm's domestic structure, its international division tends to be organized on
geography.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
30. The _____ tends to be adopted by firms with a low level of diversification whose domestic structures
are based on functions.
A. global matrix structure

B. worldwide product division structure
C. performance structure
D. worldwide area structure
A worldwide area structure tends to be favored by firms with a low degree of diversification and a
domestic structure based on functions.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
14-41
Education.
31. A _____ tends to be adopted by firms that are reasonably diversified and originally had domestic
structures based on product divisions.

A worldwide product division structure tends to be adopted by firms that are reasonably diversified
and, accordingly, originally had domestic structures based on product divisions. As with the
domestic product divisional structure, each division is a self-contained, largely autonomous entity
with full responsibility for its own value creation activities.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
14-42
Education.
32. In a _____, individual managers belong to two hierarchies (a divisional hierarchy and an area
hierarchy) and have two bosses (a divisional boss and an area boss).

B. classic matrix structure
In the classic global matrix structure, horizontal differentiation proceeds along two dimensions:
product division and geographic area. It is believed that this dual decision-making responsibility
should enable the firm to simultaneously achieve its particular objectives.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
33. The need for coordination is high in:
A. firms trying to pursue localization strategies.

B. international firms.
C. firms trying to profit from location and experience curve economies.
D. domestic corporations.
Coordination is necessary to support the transfer of skills and product offerings between units. The
need for coordination is also great in firms trying to profit from location and experience curve
economies, that is, in firms pursuing global standardization strategies.
AACSB: Analytical Thinking

Blooms: Analyze
Gradable: automatic
14-43
Education.
34. In a _____ all roles are viewed as integrating roles.

B. process structure
When the need for integration is very high, firms may institute a matrix structure, in which all roles
are viewed as integrating roles. The structure is designed to facilitate maximum integration among
subunits.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
35. _____ is a type of control that tends to be most widely used in small firms.
A. Personal control
B. Output control
D. Cultural control
Personal control is control by personal contact with subordinates. This type of control tends to be
most widely used in small firms, where it is seen in the direct supervision of subordinates' actions.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
14-44
Education.
36. In a company using _____, employees tend to control their own behavior, which reduces the need
for direct supervision.
A. bureaucratic controls
B. cultural controls
C. personal controls
D. output controls
Cultural controls exist when employees "buy into" the norms and value systems of the firm. When
this occurs, employees tend to control their own behavior, which reduces the need for direct
supervision.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
37. _____ can be defined as the amount of time top management must devote to monitoring and
evaluating subunits' performance.
B. The formal matrix
C. The costs of control
D. Differentiation
The costs of control can be defined as the amount of time top management must devote to
monitoring and evaluating subunits' performance. This is greater when the amount of performance
ambiguity is greater.

Blooms: Remember
14-45
Education.
Difficulty: 1 Easy
Gradable: automatic
38. Firms pursuing a global standardization strategy must cope with a higher level of _____, and this
raises their costs of control.
A. vertical differentiation
B. cultural division
C. horizontal differentiation
D. performance ambiguity
Although firms pursuing a global standardization strategy can reap the cost benefits of location
and experience curve economies, they must cope with a higher level of performance ambiguity,
and this raises the costs of control (in comparison with firms pursuing an international or
localization strategy).

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
39. Which of the following is more difficult for a leader?
A. To change an established organizational culture

B. To import an organizational culture
C. To create an organizational culture from scratch in a new venture
D. To export an organizational culture
It is more difficult for a leader, however forceful, to change an established organizational culture
than it is to create one from scratch in a new venture.
14-46
Education.
Blooms: Apply
Gradable: automatic
40. Firms pursuing a(n) _____ have a low need for coordination between subunits.

B. localization strategy
Firms pursuing a localization strategy focus on local responsiveness. Such firms tend to operate
with worldwide area structures, within which operating decisions are decentralized to functionally
self-contained country subsidiaries. The need for coordination between subunits (areas and country
subsidiaries) is low. This suggests that firms pursuing a localization strategy do not have a high
need for integrating mechanisms, either formal or informal, to knit together different national
operations.

Blooms: Apply
Gradable: automatic
business.
14-47
Education.
41. Firms pursuing a(n) _____ are more centralized than enterprises pursuing a localization or
international strategy.
Firms pursuing a global standardization strategy are more centralized than enterprises pursuing a
localization or international strategy. Reflecting the need for coordination of the various stages of
the firms' globally dispersed value chains, the need for integration in these firms also is high.

Blooms: Apply
Gradable: automatic
business.
42. Because of inertia forces, _____ is often no change.
A. big bang change

B. cultural change
C. shock therapy change
D. incremental change
Because of inertia forces, incremental change is often no change. Those whose power is threatened
by change can too easily resist incremental change.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
14-48
Education.
strategy.
43. To unfreeze the established culture of an organization, the company:
A. must take bold steps such as shaking up the management structure in order to implement
change.
B. is best served by taking incremental steps.
C. should employ the existing structural organization to integrate changes.
D. implement a rewards or incentive program.
The big bang theory of change maintains that effective change requires taking bold action early to
"unfreeze" the established culture of an organization and to change the distribution of power and
influence. This might include closing down plants that are not making a profit or a dramatic
structural reorganization.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
strategy.
14-49
Education.
44. Organizational structure includes several elements. Which of the following is one of them?
A. The establishment of integrating mechanisms to coordinate the activities of subunits.

B. The horizontal decision-making that occurs daily, for example, on the plant floor to improve
operations.
C. The manner in which decisions are made and work is performed by individuals.
D. The informal division of the organization into cultural groups.
By organizational structure refers to three things: First, the formal division of the organization into
subunits; second, the location of decision-making responsibilities within that structure; and third,
the establishment of integrating mechanisms to coordinate the activities of subunits.

Blooms: Analyze
Gradable: automatic
45. Which of the following terms refers to the metrics used to measure the performance of subunits
and make judgments about how well managers are running those subunits?
A. Key processes
B. Control systems
C. Knowledge networks
D. Job assignments
Control systems are the metrics used to measure the performance of subunits and make judgments
about how well managers are running those subunits.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
14-50
Education.
46. Historically, Unilever measured the performance of national operating subsidiary companies
according to profitability. In this example, profitability is a(n) _____.
A. control system
B. process
C. integrating mechanism
D. incentive
Control systems are the metrics used to measure the performance of subunits and make judgments
about how well managers are running those subunits. For example, historically Unilever measured
the performance of national operating subsidiary companies according to profitability—profitability
was the metric.
AACSB: Reflective Thinking

Blooms: Apply
Gradable: automatic
47. The manner in which decisions are made and work is performed within the organization is known
as the firm's _____.
A. organizational culture
B. incentives
C. control systems
D. processes
Processes are the manner in which decisions are made and work is performed within the
organization.

Blooms: Remember
14-51
Education.
Difficulty: 1 Easy
Gradable: automatic
48. The norms and values systems that are shared among the employees of a company are referred to
as _____.
A. processes
B. control systems
C. incentives
D. organizational culture
Organizational culture refers to the norms and value systems that are shared among the employees
of an organization. Just as societies have cultures, so do organizations.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
A. integrating mechanism
C. knowledge network
A firm's vertical differentiation determines where in its hierarchy the decision-making power is
concentrated.

Blooms: Remember
14-52
Education.
Difficulty: 1 Easy
Gradable: automatic
50. What is horizontal differentiation?
A. The mechanisms that enable each subunit to operate independently

B. The formal division of the organization into subunits
C. The location of decision-making responsibilities within a structure
D. The mechanisms for coordinating subunits
Horizontal differentiation refers to the formal division of the organization into subunits.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
51. Integration mechanisms are the:
A. formal division of the organization into subunits.

B. mechanisms that enable each subunit to operate independently.
C. mechanisms for coordinating subunits.
D. location of decision making responsibilities within a structure.
Integrating mechanisms are mechanisms for coordinating subunits.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
14-53
Education.
52. Which of the following is an argument favoring centralization?
A. It permits greater flexibility.

B. Motivational research favors it.
C. It can avoid the duplication of activities.
D. It gives top management time to focus on critical issues by delegating routine issues to lower-
level managers.
Centralization can avoid the duplication of activities that occurs when similar activities are carried
on by various subunits within the organization. For example, many international firms centralize
their R&D functions at one or two locations to ensure that R&D work is not duplicated.

Blooms: Analyze
Gradable: automatic
53. Which of the following is an argument favoring decentralization?
A. It can facilitate coordination.

B. It can help ensure that decisions are consistent with organizational objectives.
C. It can give top-level managers the means to bring about needed major organizational changes.
D. It permits greater flexibility.

nature.

Blooms: Apply
Gradable: automatic
14-54
Education.
54. Centralization:
A. gives top management time to focus on critical issues by delegating more routine issues to
lower-level managers.
B. can give top-level managers the means to bring about needed major organizational changes by
concentrating power and authority in one individual or a management team.
C. permits greater flexibility because decisions do not have to be "referred up the hierarchy" unless
they are exceptional in nature.
D. can be used to establish relatively autonomous, self-contained subunits within an organization.
By concentrating power and authority in one individual or a management team, centralization can
give top-level managers the means to bring about needed major organizational changes.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
55. A firm that needs greater flexibility should choose _____ for its decision-making.
B. decentralization
D. control systems

nature.

14-55
Education.
Blooms: Apply
Gradable: automatic
56. Centralization and decentralization differ because:
A. centralization hinders coordination, while decentralization facilitates coordination.

B. centralization prevents top-level managers from making required organizational changes, while
decentralization gives top-level managers greater power to make organizational changes.
C. centralization ensures that decisions are consistent with organizational objectives, while
decentralization can result in decisions at variance with organizational goals.
D. centralization promotes flexibility, while decentralization reduces flexibility.
Centralization can help ensure that decisions are consistent with organizational objectives. When
decisions are decentralized to lower-level managers, those managers may make decisions at
variance with top management's goals. Centralization of important decisions minimizes the chance
of this occurring.

Blooms: Apply
Gradable: automatic
14-56
Education.
57. Which of the following decisions is typically centralized at a firm's headquarters?
A. Production decisions
B. Human resource management
C. Marketing decisions
D. Overall firm strategy
Decisions regarding overall firm strategy are typically centralized at the firm's headquarters.
Operating decisions, such as those relating to production, marketing, R&D, and human resource
management, may or may not be centralized depending on the firm's strategy.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
58. The emphasis on local responsiveness in firms pursuing a localization strategy creates strong
pressures for:
A. centralizing all decisions regarding marketing, R&D, and human resource management.
B. decentralizing operating decisions to foreign subsidiaries.
C. centralizing all operating decisions.
D. global learning.
The emphasis on local responsiveness in firms pursuing a localization strategy creates strong
pressures for decentralizing operating decisions to foreign subsidiaries.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
14-57
Education.
59. Global learning based on the multidirectional transfer of skills between subsidiaries and the
corporate center is a central feature of a firm pursuing a(n) _____ strategy.
A. localization
B. global standardization
C. transnational
D. international
Global learning based on the multidirectional transfer of skills between subsidiaries, and between
subsidiaries and the corporate center, is a central feature of a firm pursuing a transnational
strategy.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
60. Which of the following would be a typical responsibility of a product division in a worldwide
product divisional structure?
A. Operating decisions
B. Overall strategic development of the firm
C. Financial control of the various divisions
D. Decisions regarding legal issues
With a product divisional structure, each division is responsible for a distinct product line (business
area). The responsibility for operating decisions is typically decentralized to product divisions, which
are then held accountable for their performance.

Blooms: Analyze
14-58
Education.
Gradable: automatic
61. Which of the following statements is true about a product divisional structure?
A. In a product divisional structure, the responsibility for the financial control of the firm is typically
decentralized.
B. A product divisional structure tends to be organized on geography.
C. In a product divisional structure, each product division is set up as a self-contained, largely
autonomous entity with its own functions.
D. In a product divisional structure, the responsibility for operating decisions is typically centralized.
With a product divisional structure, each division is responsible for a distinct product line (business
area). The responsibility for operating decisions is typically decentralized to product divisions, which
are then held accountable for their performance.

Blooms: Analyze
Gradable: automatic
62. Regardless of a firm's domestic structure, its international division tends to be organized on _____.
A. product
B. geography
C. people
D. economy
When firms initially expand abroad, they often group all their international activities into an
international division. Regardless of the firm's domestic structure, its international division tends to
be organized on geography.
14-59
Education.
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
63. Which of the following is a problem that arises due to an international division structure?
A. In an international division structure, a firm's international division tends to be organized on

products.
B. The heads of domestic functions are presumed to be able to represent the interests of all
countries to headquarters.
C. The heads of foreign subsidiaries are not given as much voice in the organization as the heads
of domestic functions or divisions.
D. The dual-hierarchy structure can lead to conflict and perpetual power struggles between the
areas and the product divisions.
Despite its popularity, an international division structure can give rise to problems. The dual
structure it creates contains inherent potential for conflict and coordination problems between
domestic and foreign operations.

Blooms: Analyze
Gradable: automatic
14-60
Education.
64. In which of the following organizational structures are the domestic operations and foreign
operations isolated from each other leading to coordination problems?
A. Global matrix structure

B. International division structure
C. Worldwide product division structure
D. Worldwide area structure
Another problem with international division structure is the implied lack of coordination between
domestic operations and foreign operations, which are isolated from each other in separate parts
of the structural hierarchy. This can inhibit the worldwide introduction of new products, the transfer
of core competencies between domestic and foreign operations, and the consolidation of global
production at key locations so as to realize location and experience curve economies.

Blooms: Apply
Gradable: automatic
65. Which of the following is true regarding a worldwide area structure?
A. It tends to be favored by firms with a high degree of diversification.

B. It inhibits local responsiveness.
C. It tends to be favored by firms with a domestic structure based on functions.
D. Decision-making responsibilities are centralized.
A worldwide area structure facilitates local responsiveness. Because decision-making responsibilities

are decentralized, each area can customize product offerings, marketing strategy, and business
strategy to the local conditions. However, this structure encourages fragmentation of the
organization into highly autonomous entities.

14-61
Education.
Blooms: Apply
Gradable: automatic
66. A _____ encourages fragmentation of the organization into highly autonomous entities.

C. worldwide product structure
D. global network structure
A worldwide area structure tends to be favored by firms with a low degree of diversification and a
domestic structure based on functions. This structure encourages fragmentation of the
organization into highly autonomous entities.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
14-62
Education.
67. A(n) _____ tends to be adopted by firms that are reasonably diversified.

B. international division structure
A worldwide product division structure tends to be adopted by firms that are reasonably diversified
and, accordingly, originally had domestic structures based on product divisions in which each
division is a self-contained, largely autonomous entity with full responsibility for its own value
creation activities. The headquarters retains responsibility for the overall strategic development and
financial control of the firm.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
68. The worldwide product division structure:
A. is weak in local responsiveness.

B. inhibits the realization of location economies.
C. inhibits the realization of experience curve economies.
D. limits the transfer of core competencies between areas.
The main problem with the worldwide product division structure is the limited voice it gives to area
or country managers, since they are seen as subservient to product division managers. The result
can be a lack of local responsiveness, which can lead to performance problems.

Blooms: Apply
Gradable: automatic
14-63
Education.
69. In the classic global matrix structure, horizontal differentiation proceeds along two dimensions.
These dimensions are:
A. hierarchy and overall strategy.

B. target returns and sales potential.
C. marketing strategy and sales potential.
D. product division and geographic area.
product division and geographic area. The philosophy is that responsibility for operating decisions
pertaining to a particular product should be shared by the product division and the various areas of
the firm.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
70. In practice, the dual-hierarchy in a global matrix structure:
A. lessens all forms of conflict.

B. makes it easy to ascertain accountability.
C. results in extremely quick decision making.
D. can lead to perpetual power struggles.
The dual hierarchy structure can lead to conflict and perpetual power struggles between the areas
and the product divisions, catching many managers in the middle. To make matters worse, it can
prove difficult to ascertain accountability in this structure.

14-64
Education.
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
71. The need for coordination between subunits is lowest in firms pursuing a(n) _____.
C. global strategy
Firms pursuing a localization strategy are primarily concerned with local responsiveness. Such firms
are likely to operate with a worldwide area structure in which each area has considerable autonomy
and its own set of value creation functions. Because each area is established as a stand-alone entity,
the need for coordination between areas is minimized.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
14-65
Education.
72. The need for coordination between subunits is highest in firms pursuing a(n) _____.
C. global strategy
The need for coordination is greatest in transnational firms, which simultaneously pursue location
and experience curve economies, local responsiveness, and the multidirectional transfer of core
competencies and skills among all of the firm's subunits.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
73. _____ refers to giving a person in each subunit responsibility for coordinating with another subunit
on a regular basis.
A. Global learning
B. Liaison roles
C. Knowledge network
D. Matrix Structures
Liaison roles are a bit complex. When the volume of contacts between subunits increases,
coordination can be improved by giving a person in each subunit responsibility for coordinating
with another subunit on a regular basis. Through these roles, the people involved establish a
permanent relationship.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
14-66
Education.
74. A(n) _____ is valuable because it can be used as a nonbureaucratic conduit for information flows
within a multinational enterprise.
A. liaison network
B. matrix structure
D. knowledge network
not on formal organization structure, but on informal contacts between managers within an

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
75. Which control system is most widely used by small firms?
A. Personal
B. Output
C. Bureaucratic
D. Cultural

Blooms: Remember
Difficulty: 1 Easy
14-67
Education.
Gradable: automatic
76. Control through a system of rules and procedures that directs the actions of subunits is _____.
A. personal control
B. bureaucratic control
C. output control
D. cultural control

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
77. _____ control is achieved by comparing actual performance against targets and intervening
selectively to take corrective action.
A. Personal
B. Output
C. Bureaucratic
D. Cultural
Output controls involve setting goals for subunits to achieve and expressing those goals in terms of
relatively objective performance metrics such as profitability, productivity, growth, market share,
and quality. Control is achieved by comparing actual performance against targets and intervening
selectively to take corrective action.
14-68
Education.
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
78. There is low interdependence, performance ambiguity, and costs of control in firms pursuing a(n)
_____.
D. global strategy
In firms pursuing a localization strategy, each national operation is a stand-alone entity and can be
judged on its own merits. The level of performance ambiguity is low.

Blooms: Apply
Gradable: automatic
14-69
Education.
79. Which of the following is true of a strong corporate culture?
A. Almost all managers share a relatively consistent set of values and norms that have a clear
impact on the way work is performed.
B. A strong culture leads to high performance.
C. Outsiders see firms with a strong culture as being autocratic and inflexible.
D. A strong culture is always a good culture.
Strong does not necessarily mean good. A culture can be strong but bad. The culture of the Nazi
Party in Germany was certainly strong, but it was most definitely not good. Nor does it follow that a
strong culture leads to high performance.

Blooms: Analyze
Gradable: automatic
80. Firms pursuing a(n) _____ attempt to create value by transferring core competencies from home to
foreign subsidiaries.
D. global strategy
Firms pursuing an international strategy attempt to create value by transferring core competencies
from home to foreign subsidiaries. If they are diverse, as most of them are, these firms operate with
a worldwide product division structure.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
14-70
Education.
business.
81. Firms pursuing a global standardization strategy:
A. have low performance ambiguity.

B. attempt to create value by transferring core competencies from home to foreign subsidiaries.
C. are less centralized than enterprises pursuing a localization or international strategy.
D. have a high need for coordination and cultural controls.
Firms pursuing a global standardization strategy focus on the realization of location and experience
curve economies. In addition to output and bureaucratic controls, firms pursuing a global
standardization strategy tend to stress the need to build a strong organizational culture that can
facilitate coordination and cooperation.

Blooms: Apply
Gradable: automatic
business.
14-71
Education.
82. A firm that operates with matrix-type structures in which both product divisions and geographic
areas have significant influence would use which of the following strategies?
A. International strategy
B. Transnational strategy
C. Global strategy
D. Localization strategy
Firms pursuing a transnational strategy focus on the simultaneous attainment of location and
experience curve economies, local responsiveness, and global learning. These firms may operate
with matrix-type structures in which both product divisions and geographic areas have significant
influence.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
business.
83. Firms pursuing a transnational strategy:
A. have a low need for coordination.

B. require very few integrating mechanisms.
C. have a very high need for cultural controls.
D. operate with a worldwide product division structure.
The need for coordination is high in transnational firms. This is reflected in the use of an array of
formal and informal integrating mechanisms, including formal matrix structures and informal
management networks. In addition to output and bureaucratic controls, firms pursuing a
transnational strategy need to cultivate a strong culture.

14-72
Education.
Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
business.
84. Which of the following is an effective strategy for implementing organizational change?
A. Physically move the organization to a new state.

B. Keep the organizational structure.
C. Refreeze the organizational structure.
D. Slowly, through incremental changes, rearrange the organizational structure.
The basic principles for successful organizational change can be summarized as follows: (1)
unfreeze the organization through shock therapy, (2) move the organization to a new state through
proactive change in the architecture, and (3) refreeze the organization in its new state.

Blooms: Analyze
Gradable: automatic
strategy.
14-73
Education.
85. _____ refers to the location of decision-making responsibilities within a structure.
A. Vertical differentiation
B. Integrating mechanisms
C. Horizontal integration
A firm's vertical differentiation determines where in its hierarchy the decision-making power is
concentrated.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
86. What type of control system uses a system of rules and procedures that directs the actions of
subunits?
A. Personal controls
B. Bureaucratic controls
C. Cultural controls
D. Output controls

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
14-74
Education.
87. Which of the following is a potential drawback of the worldwide area structure?
A. This structure discourages division of the organization into autonomous entities.

B. This structure makes it difficult to decentralize decisions regarding operations authority.
C. This structure makes it difficult to realize location and experience curve economies.
D. This structure reduced local responsiveness.
A worldwide area structure can make it difficult to transfer core competencies and skills between
areas and to realize location and experience curve economies. In other words, the structure is
consistent with a localization strategy, but may make it difficult to realize gains associated with
global standardization.

Blooms: Apply
Gradable: automatic
88. The establishment of integrating mechanisms that coordinate subunits is a dimension of _____.
B. organizational culture
C. vertical differentiation
D. organizational structure
Organizational structure can be thought of in terms of three dimensions: First, vertical

differentiation or the location of decision-making responsibilities within the firm. Second, horizontal
differentiation or the formal division of the organization into subunits. Finally, the establishment of
integrating mechanisms that coordinate subunits.

Blooms: Remember
Difficulty: 1 Easy
14-75
Education.
Gradable: automatic
89. In Firm A, each division is a self-contained, largely autonomous entity with full responsibility for its
own value creation activities. What type of structure does Firm A employ?
A. Worldwide product division structure

B. Global matrix structure
C. Worldwide area structure
D. Knowledge network structure
Firms that adopt the worldwide product division structure are reasonably diversified and originally
had domestic structures based on product divisions. In the worldwide product division structure,
each division is a self-contained, largely autonomous entity with full responsibility for its own value
creation activities. The headquarters retains the responsibility for the overall strategic development
and financial controls of the firm.

Blooms: Analyze
Gradable: automatic
14-76
Education.
90. In the _____, the philosophy is that responsibility for operating decisions pertaining to a particular
product should be shared by the product division and the various areas of the firm.

B. classic global matrix structure
D. knowledge network structure
product division and geographic area. The philosophy is that responsibility for operating decisions
pertaining to a particular product should be shared by the product division and the various areas of
the firm.

Blooms: Apply
Gradable: automatic
14-77
Education.
91. When the need for integration is very high, firms may:
A. use direct contact between subunit managers.

B. give a person in each subunit responsibility for coordinating with another subunit on a regular
basis.
C. institute a matrix structure, in which all roles are viewed as integrating roles.
D. use temporary or permanent teams composed of individuals from the subunits that need to
achieve coordination.
The formal mechanisms used to integrate subunits vary in complexity from simple direct contact
and liaison roles, to teams, to a matrix structure. Direct contact between subunit managers is the
simplest integrating mechanism. By this "mechanism," managers of the various subunits simply
contact each other whenever they have a common concern. When the volume of contacts between
subunits increases, coordination can be improved by giving a person in each subunit responsibility
for coordinating with another subunit on a regular basis. When the need for coordination is greater
still, firms tend to use temporary or permanent teams composed of individuals from the subunits
that need to achieve coordination. When the need for integration is very high, firms may institute a
matrix structure, in which all roles are viewed as integrating roles.

Blooms: Apply
Gradable: automatic
14-78
Education.
92. _____ is achieved by comparing actual performance against targets and intervening selectively to
take corrective action.
A. Personal control
B. Cultural control
D. Output control
Output controls involve setting goals for subunits to achieve and expressing those goals in terms of
relatively objective performance metrics such as profitability, productivity, growth, market share,
and quality. Control is achieved by comparing actual performance against targets and intervening
selectively to take corrective action. Subunits' goals depend on their role in the firm.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
93. _____ exists when the causes of a subunit's poor performance are not clear.
B. Vertical differentiation
C. Output controls
Performance ambiguity exists when the causes of a subunit's poor performance are not clear. In
firms pursuing a localization strategy, each national operation is a stand-alone entity and can be
judged on its own merits. The level of performance ambiguity is low. In an international firm, the
level of interdependence is somewhat higher. In firms pursuing a global standardization strategy,
the levels of interdependence and performance ambiguity are high. The level of performance
ambiguity is highest of all in transnational firms.
14-79
Education.
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
94. _____ are the metrics used to measure the performance of subunits and make judgments about
how well managers are running those subunits.
A. Cultural controls
B. Control systems
C. Output controls
D. Incentives
The relationships between a firm's control systems and incentive systems is a close one. Control
systems are the metrics used to measure the performance of subunits and make judgments about
how well managers are running those subunits. Incentives are the devices used to reward
appropriate managerial behavior. The relationship between these two areas is important because
incentives are very closely tied to performance metrics.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
14-80
Education.
95. Which of the following is a disadvantage of a worldwide area structure?
A. Firms that use this structure tend to have a high degree of diversification.
B. Decision-making is centralized and subsidiaries cannot customize to local marketing needs.
C. The fragmentation of the organization that makes it difficult to realize location and experience
curve economies.
D. It does not facilitate local responsiveness.
The worldwide area structure tends to be favored by firms with a low degree of diversification and
a domestic structure based on functions. This structure divides the world into geographic areas,
each area being a self-contained, largely autonomous unit. Firms choose this structure because it
facilitates local responsiveness. Decision-making is decentralized, allowing subsidiaries to customize
marketing to local needs. A key disadvantage of this structure, however, is the fragmentation of the
organization that ensues, making it difficult to realize location and experience curve economies.
Firms that choose this structure find it difficult to respond to pressures for cost reductions or to
transfer core competencies within the firm.

Blooms: Apply
Difficulty: 3 Hard
Gradable: automatic
Essay Questions
14-81
Education.
96. Explain organizational structure.
A firm's organizational structure refers to three things. First, the term refers to the formal division of
the organization into subunits such as product divisions, national operations, and functions.
Second, the term refers to the location of decision-making responsibilities within the formal
structure. Third, organizational structure refers to the establishment of integrating mechanisms to
coordinate the activities of subunits including cross-functional teams and/or pan-regional
committees.

Blooms: Understand
Gradable: manual
97. Why should a firm centralize its decision-making?
Firms should centralize their decision-making for four main reasons. First, centralization can
facilitate coordination. Second, centralization can help ensure that decisions are consistent with
organizational objectives. Third, by concentrating power and authority in one individual or a
management team, centralization can give top-level managers the means to bring about needed
major organizational changes. Finally, centralization can avoid the duplication of activities that
occurs when similar activities are carried on by various subunits within the organization.

Blooms: Evaluate
Difficulty: 3 Hard
Gradable: manual
14-82
Education.
98. Explain the five reasons why a firm should decentralize its decision-making.
Firms should decentralize their decision-making for five main reasons. First, top management can
become overburdened when decision-making authority is centralized, and this can result in poor
decisions. Second, motivational research favors decentralization - behavioral scientists have long
argued that people are willing to give more to their jobs when they have a greater degree of
individual freedom and control over their work. Third, decentralization permits greater flexibility -
more rapid response to environmental changes - because decisions do not have to be "referred up
the hierarchy" unless they are exceptional. Fourth, decentralization can result in better decisions
because decisions are made closer to the spot by individuals who have better information than
managers several levels up in a hierarchy. Finally, decentralization can increase control.

Blooms: Evaluate
Difficulty: 3 Hard
Gradable: manual
99. Discuss the location of decision-making in a firm that is following a transnational strategy.
Decision-making in a firm pursuing a transnational strategy is complex. The need to realize location
and experience curve economies requires some centralized control over global production centers.
Yet, the need for local responsiveness requires the decentralization of many operating decisions,
particularly those for marketing, to foreign subsidiaries. Decentralization of decision-making is also
needed to allow subsidiaries the freedom to develop their own skills and competencies—a
requirement that is necessary for the global learning component of the transnational strategy.

Blooms: Apply
Difficulty: 3 Hard
Gradable: manual
14-83
Education.
100. Describe the situation where an international division makes sense. How common is this structure?
What are the disadvantages of the structure?
When firms initially expand abroad, they often group all their international activities into an
international division. This has tended to be the case for firms organized on the basis of functions
and for firms organized on the basis of product divisions. Many manufacturing firms expanded
internationally by exporting the product manufactured at home to foreign subsidiaries to sell.
According to a Harvard study, some 60 percent of all firms that have expanded internationally have
initially adopted the international division structure.
This type of structure does have problems however. One problem is that the heads of foreign
subsidiaries are not given as much voice in the organization as the heads of domestic functions.
Second, the isolation of domestic and foreign operations from each other can inhibit the
introduction of new products, the transfer of core competencies, and the consolidation of global
production at key locations.

Blooms: Apply
Difficulty: 3 Hard
Gradable: manual
101. What are the main strengths and weaknesses of the worldwide product division structure?
The primary strength of the worldwide product division structure is that it provides an
organizational context in which it is easier to pursue the consolidation of value creation activities at
key locations necessary for realizing location and experience curve economies. It also facilitates the
transfer of core competencies within a division's worldwide operations and the simultaneous
worldwide introduction of new products. The main weakness of the structure is the limited voice it
gives to area or country managers, since they are seen as subservient to the product division
managers. This can lead to a lack of local responsiveness.

Blooms: Analyze
14-84
Education.
Difficulty: 3 Hard
Gradable: manual
102. What is a knowledge network? What is the advantage of such a system?
not on formal organizational structure, but on informal contacts between managers within an
The great strength of such a network is that it can be used as a nonbureaucratic conduit for
knowledge flows within an organization.

Blooms: Apply
Difficulty: 3 Hard
Gradable: manual
103. Consider the use of personal controls in international firms. In which type of firm is this control
most common?
However, it also structures the relationships between managers at different levels in multinational
enterprises. For example, the CEO may use a great deal of personal control to influence the
behavior of his or her immediate subordinates, such as the heads of worldwide product divisions or
major geographic areas. In turn, these heads may use personal control to influence the behavior of
their subordinates, and so on down through the organization.

Blooms: Apply
Difficulty: 3 Hard
Gradable: manual
14-85
Education.
104. Discuss the characteristics of a firm that is pursuing an international strategy.
Firms pursuing an international strategy attempt to crease value by transferring core competencies
to foreign subsidiaries. If they are diverse, as most of them are, these firms operate with a
worldwide product division structure. Headquarters typically maintains centralized control over the
source of the firm's core competency, which is most typically found in the R&D and/or marketing
functions of the firm. All other operating decisions are decentralized within the firm to subsidiary
operations in each country (which in diverse firms report to worldwide product divisions).

Blooms: Apply
Difficulty: 3 Hard
Gradable: manual
business.
105. Discuss the sources of inertia in organizations. Is it easy to make organizational changes?
Organizations are difficult to change. Within most organizations are strong inertia forces. These
forces come from a number of sources. One source of inertia is the existing distribution of power
and influence within an organization. Managers who are not happy with the changes are likely to
resist and slow the process. A second source of inertia is the existing culture. Since value systems
reflect deeply held beliefs, they can be very hard to change. A third source of inertia derives from
senior managers' preconceptions about the appropriate business model or paradigm. Managers
may not recognize the value in a given business model that has been successful in the past. Finally,
institutional constraints may act as a source of inertia. In some cases, local content rules or
regulations pertaining to layoffs can make it difficult for firms to adopt the most effective strategy
and architecture.

Blooms: Evaluate
Difficulty: 3 Hard
14-86
Education.
Gradable: manual
strategy.
106. What are the basic principles for successful organizational change?
There are three basic principles for organizational change. First, unfreeze the organization through
shock therapy and change the distribution of power and influence. Second, move the organization
to a new state through proactive change in the architecture, so that it matches the desired new
strategic posture. Finally, refreeze the organization in its new state and socialize employees into the
new way of doing things.

Blooms: Apply
Difficulty: 3 Hard
Gradable: manual
strategy.
107. Discuss the issues involved in unfreezing an organization.
Because of inertia forces, incremental change is often no change. Those whose power is threatened
by change can too easily resist incremental change. This leads to the big bang theory of change,
which maintains that effective change requires taking bold action early to "unfreeze" the
established culture of an organization and to change the distribution of power and influence. Shock
therapy to unfreeze the organization might include the closure of plants deemed uneconomic or
the announcement of a dramatic structural reorganization. It is also important to realize that
change will not occur unless senior managers are committed to it. Senior managers must clearly
articulate the need for change so employees understand both why it is being pursued and the
benefits that will flow from successful change. Senior managers must also practice what they preach
and take the necessary bold steps.
14-87
Education.
Blooms: Apply
Difficulty: 3 Hard
Gradable: manual
strategy.
108. Discuss the issues involved in refreezing an organization.
Refreezing the organization takes longer and may require that a new culture be established, while
the old one is being dismantled. Thus, refreezing requires that employees be socialized into the
new way of doing things. Hiring policies must be changed to reflect the new realities, with an
emphasis on hiring individuals whose own values are consistent with that of the new culture the
firm is trying to build. Similarly, control and incentive systems must be consistent with the new
realities of the organization, or change will never take.

Blooms: Apply
Difficulty: 3 Hard
Gradable: manual
strategy.
14-88
Education.

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Chapter 14

The Organization of International Business

True / False Questions

1. Organizational structure refers to the totality of a firm's organization.

3. A decentralized organization allows managers to respond to environmental changes more quickly

4. The choice between centralization and decentralization is not absolute.

8. The worldwide product division structure facilitates local responsiveness.

9. It is difficult to ascertain accountability in the global matrix structure.

13. Bureaucratic control involves personal contact with subordinates.

15. Performance ambiguity lowers the cost of control.

18. An organizational culture can be strong but bad.

Multiple Choice Questions

23. A firm's organizational culture refers to the:

25. By centralizing decision making, a firm:

A. allows managers to respond to environmental changes more quickly.

A. global standardization strategy

A. global matrix structure

A. worldwide product division structure

A. worldwide product division structure

33. The need for coordination is high in:

A. firms trying to pursue localization strategies.

A. worldwide area structure

39. Which of the following is more difficult for a leader?

A. To change an established organizational culture

A. global standardization strategy

A. big bang change

43. To unfreeze the established culture of an organization, the company:

A. The establishment of integrating mechanisms to coordinate the activities of subunits.

A. The mechanisms that enable each subunit to operate independently

51. Integration mechanisms are the:

A. formal division of the organization into subunits.

52. Which of the following is an argument favoring centralization?

A. It permits greater flexibility.

53. Which of the following is an argument favoring decentralization?

A. It can facilitate coordination.

56. Centralization and decentralization differ because:

A. centralization hinders coordination, while decentralization facilitates coordination.

57. Which of the following decisions is typically centralized at a firm's headquarters?

A. In an international division structure, a firm's international division tends to be organized on

A. Global matrix structure

65. Which of the following is true regarding a worldwide area structure?

A. It tends to be favored by firms with a high degree of diversification.

A. worldwide area structure

A. worldwide area structure

68. The worldwide product division structure:

A. is weak in local responsiveness.

A. hierarchy and overall strategy.

A. lessens all forms of conflict.

75. Which control system is most widely used by small firms?

79. Which of the following is true of a strong corporate culture?

81. Firms pursuing a global standardization strategy:

A. have low performance ambiguity.

83. Firms pursuing a transnational strategy:

A. have a low need for coordination.

A. Physically move the organization to a new state.

85. _____ refers to the location of decision-making responsibilities within a structure.

A. This structure discourages division of the organization into autonomous entities.

A. Worldwide product division structure

A. worldwide product division structure

A. use direct contact between subunit managers.

95. Which of the following is a disadvantage of a worldwide area structure?

96. Explain organizational structure.

102. What is a knowledge network? What is the advantage of such a system?