Chapter 07

Business Essentials, Canadian Edition, 9e (Ebert)
Chapter 7 Organizing the Business Enterprise
7.1 Multiple Choice Questions
1) Organizational structure refers to

A) the process that is used to develop an organizational chart.
B) determining which employees report to whom.
C) the specification of the jobs to be done within a business and how those jobs relate to one
another.
D) determining how best to use available material resources.
E) structuring the necessary resources to complete a task.
Answer: C
Diff: 2 Type: MC Page Ref: 136
Skill: Knowledge
Objective: 7.1
2) Which of the following is correct with respect to organizational structure?

A) Once an organizational structure is in place, it tends not to change much until the next major
change is made.
B) Because of the busy environment that defines most organizations, structure can sometimes
develop without much planning.
C) The organization's purpose, mission, and strategy are not particularly important factors in the
structure an organization adopts; rather, the most important factor is executive preferences.
D) An organization's structure is largely the result of rational planning, and the preferences of
managers do not generally influence the decision of which structure to adopt.
E) All of these are correct.
Answer: B
Skill: Comprehension
Objective: 7.1
3) Roger is analyzing the jobs to be done in his company, their specific overall purpose, and how
the jobs relate to each other. Roger is analyzing the company's
A) job descriptions.
B) organizational chart.
C) organizational structure.
D) departmentalization.
E) chain of command.
Answer: C
Objective: 7.1
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4) When Ford executives announced changes intended to eliminate corporate bureaucracy, speed
decision making, and improve communication and working relationships among people at
different levels of the organization, these changes were examples of the ________ function of
management.
A) organizing
B) planning
C) directing
D) controlling
E) none of these
Answer: A
Objective: 7.1
5) Which of the following clarify structure and show employees where they fit into a firm's
operations?
A) Organization charts
B) Responsibility
C) Departmentalization
D) Delegation
E) The mission statement
Answer: A
Skill: Knowledge
Objective: 7.1
6) What is the purpose of organization charts?

A) They show the firm's structure and the relationship of employees within the organization.
B) They are a valuable tool for companies experiencing a large increase in research and
development expenditures on new products.
C) They show the grouping of jobs into logical units.
D) They are used to plan marketing campaigns.
E) They determine which jobs need to be accomplished and who will perform them.
Answer: A
Objective: 7.1
2
7) What would an organization use to show a new employee his/her position in the firm and its
relationship to other positions?
A) Manual of positions and relationships
B) Departmentalization plan
C) Organizational strategy
D) Job specialization list
E) Organization chart
Answer: E
Skill: Knowledge
Objective: 7.1
8) What is the meaning of the individual boxes on an organization chart?

A) Each box is appropriately labelled as a function or a process in the flow of materials/services.
B) Each box represents a job within the company.
C) Each box indicates a different geographical departmentalization.
D) Each box represents a group of people.
E) Each box represents a product or service provided by the organization.
Answer: B
Objective: 7.1
9) What is the meaning of the solid lines connecting the boxes on an organization chart?
A) They identify the relationship of the important staff departments.
B) They identify the level of specialization within the organization.
C) They identify the reporting relationship, or chain of command, within the organization.
D) They identify the relationship between the processes in the flow of materials/services.
E) They identify the products or services available from the organization.
Answer: C
Objective: 7.1
10) The chain of command has all the following characteristics except
A) solid lines in an organization chart show the chain of command.
B) when the chain of command is not clear, many kinds of problems can arise.
C) it shows the flow of decision-making power in a firm.
D) the chain of command shows both the informal and formal organizational structure.
E) it shows the reporting relationships within a business.
Answer: D
Objective: 7.1
3
11) Scott is looking at a chart showing the company's organization structure. He notices that
there is a solid line connecting Judy and Charles to Kara. This means that
A) all reports created by Judy and Charles must be sent to Kara.
B) the product flows from Judy and Charles to Kara.
C) there is a direct telephone line between Judy and Charles and Kara.
D) Kara has more seniority than Judy or Charles.
E) Judy and Charles both report to Kara.
Answer: E
Objective: 7.1
12) Whether a business is large or small, the starting point in developing its organization
structure is
A) determining a strategic plan.
B) appointing a board of directors.
C) establishing a mission statement.
D) determining who will do what.
E) None of these are correct.
Answer: D
Skill: Knowledge
Objective: 7.1
13) The chain of command illustrates ________, while the organization chart illustrates
________.
A) job specialization; the company's structure
B) reporting relationships; job specialization
C) centralization; decentralization
D) functional departmentalization; job specialization
E) reporting relationships; the company's structure
Answer: E
Skill: Knowledge
Objective: 7.1
14) The process of identifying the specific jobs that need to be done and designating the people
who will perform them leads to
A) segmentation.
B) departmentalization.
C) job specialization.
D) group tasks.
E) mission enhancement.
Answer: C
Objective: 7.2
4
15) At a steel company, some employees transport scrap steel while others operate shredding
equipment. What does this example demonstrate?
A) Departmentalization
B) Specialization
C) Functionalization
D) Responsibility
E) Innovation
Answer: B
Objective: 7.2
16) In a Disney animated feature, the job of one cartoonist may be to draw the face of a single
character throughout the feature. This is an example of
A) mission enhancement.
B) segmentation.
C) departmentalization.
D) group tasks.
E) job specialization.
Answer: E
Objective: 7.2
17) Grouping jobs into logical units is called

A) departmentalization.
B) process management.
C) specialization.
D) development of the grapevine.
E) authorization.
Answer: A
Skill: Knowledge
Objective: 7.2
18) The two basic building blocks of all business organizations are
A) specialization and departmentalization.
B) profit centres and divisions.
C) functional and divisional departmentalization.
D) managers and workers.
E) centralization and decentralization.
Answer: A
Diff: 2 Type: MC Page Ref: 137-139
Skill: Knowledge
Objective: 7.2
5
19) Michael is in the process of taking the department's overall "job" and breaking it down into
smaller and smaller "jobs." Michael is working on
A) a matrix structure.
B) job specialization.
C) departmentalization.
D) job classification.
E) job analysis.
Answer: B
Objective: 7.2
20) Which of the following is correct with regard to job specialization?

A) It is a new idea.
B) Its application is limited to factory work.
C) It is a natural part of organizational growth.
D) It makes it more difficult to replace people who leave the organization.
Answer: C
Objective: 7.2
21) Departmentalization refers to

A) the number of employees managed by a single supervisor.
B) the level at which decisions are made.
C) the duty to perform an assigned task.
D) the grouping of specialized jobs into logical units.
E) the establishment of a unit that is responsible for its own costs and profits.
Answer: D
Skill: Knowledge
Objective: 7.2
22) David has grouped some jobs together in such a way that they can be treated as if they are a
separate business which is responsible for its costs, revenues, and profits. David has created a
A) functional department.
B) profit centre.
C) departmentalized work group.
D) matrix structure.
E) divisionalized department.
Answer: B
Objective: 7.2
6
23) ComputerLand's structure is set up so that each location is responsible for its own costs and
profits. Each location is
A) a specialized unit.
B) a process department.
C) a profit centre.
D) a product department.
E) a centralized department.
Answer: C
Objective: 7.2
24) The men's clothing department at Hudson's Bay is an example of a

A) functional department.
B) process department.
C) product department.
D) profit centre.
E) matrix structure.
Answer: D
Objective: 7.2
25) Businesses use profit centres because

A) sales revenue in various territories is easier to determine.
B) each individual reports to no more than two managers.
C) a greater degree of job specialization can be attained.
D) the organization may be divided according to the production process used.
E) each separate unit is responsible for its own costs.
Answer: E
Objective: 7.2
26) Department stores like Hudson's Bay are most likely to departmentalize by
A) function.
B) geography.
C) process.
D) customer.
E) product.
Answer: D
Objective: 7.2
7
27) Susie's Pets and Supplies, a retail shop that sells pets and many related products needed by
those pets, has recently reorganized. One area of the store is exclusively for dogs, another
exclusively for cats, another exclusively for tropical fish, and so on. The shop is
departmentalized by
A) process.
B) function.
C) geography.
D) customer.
E) product.
Answer: E
Objective: 7.2
28) Bigbucks Bank has separate departments for consumer loans and commercial loans. It is
departmentalized by
A) process.
B) customer.
C) product.
D) geography.
E) function.
Answer: C
Objective: 7.2
29) Pickle maker Vlasic has separate departments to transform cucumbers into fresh-packed
pickles, pickles cured in brine, and relishes. They have chosen departmentalization by
A) customer.
B) function.
C) process.
D) geography.
E) product.
Answer: C
Objective: 7.2
8
30) As part of your annual physical, you notice that while at the hospital you'll be sent to the x-
ray, to the lab for blood workups, to another department for stress testing, and so on. You realize
that since each test requires different equipment and worker skills, the hospital is
departmentalized by
A) geography.
B) function.
C) process.
D) product.
E) customer.
Answer: C
Objective: 7.2
31) Canadian Wood Products has three divisions. The Lumberjack division is involved in
harvesting trees and transporting them to lumber mills. The Milling division transforms cut
timber into dimensional lumber for building. The Paper Products division makes paper and
cardboard from the remnants of the milling process. What type of departmentalization is this an
example of?
A) Functional departmentalization
B) Process departmentalization
C) Customer departmentalization
D) Geographic departmentalization
E) Brand departmentalization
Answer: B
Objective: 7.2
32) Silver Designs is a high-end clothing manufacturer. They have three divisions producing
clothes for men, women, and teens. What is this an example of?
C) Customer departmentalization
D) Product departmentalization
E) Geographic departmentalization
Answer: C
Objective: 7.2
9
33) Electronic Universe is organized by departments such as TVs, Audio Equipment, Laptop
Computers, and Tablets. What type of departmentalization do they use?
A) Product
B) Process
C) Geographic
D) Functional
E) Electronic
Answer: A
Objective: 7.2
34) Because most sales departments and service departments want to be close to their customers,
they are usually departmentalized by
A) function.
B) product.
C) geography.
D) customer.
E) process.
Answer: C
Objective: 7.2
35) An international company that has organized itself by areas such as North America, Europe,
Pacific, and South America is departmentalized by
A) function.
B) product.
C) customer.
D) process.
E) geography.
Answer: E
Objective: 7.2
36) Firms that have departments such as production, marketing, finance, human resources, etc.
are using ________ departmentalization.
A) geographic
B) product
C) customer
D) process
E) functional
Answer: E
Objective: 7.2
10
37) In reviewing the organizational structure of your company, you notice that engineering is
subdivided into mechanical, electrical, and software. Additionally, the accounting department is
subdivided into accounts payable, accounts receivable, and asset management. What type of
departmentalization has the company selected?
A) Process
B) Functional
C) Geographic
D) Product
E) Customer
Answer: B
Objective: 7.2
38) The type of departmentalization where all the engineers are in an engineering department, all
the customer service reps are in a customer service department, and all the accountants are in an
accounting department is called ________ departmentalization.
A) customer
B) process
C) product
D) functional
E) geographic
Answer: D
Objective: 7.2
39) David has grouped some jobs together in such a way that they can be treated like they were a
small business, responsible for its costs, revenues, and profits. David has created a
A) process department.
B) departmentalized work group.
C) profit centre.
D) profit and loss centre.
E) functional department.
Answer: C
Objective: 7.2
11
40) Departmentalization is the process of
A) creating separate profit centres.
B) creating separate revenue centres.
C) developing an organization chart.
D) creating chains of command.
E) grouping jobs into logical units.
Answer: E
Skill: Knowledge
Objective: 7.2
41) Which of the following is an advantage of customer departmentalization?

A) Employees will make more money and have more job security.
B) Top managers can easily see how the production process is working.
C) Greater expertise can be developed when specialists of one function work together.
D) Top managers can determine when resources need to be changed because of increasing
demand in a geographic area.
E) The business benefits from efficiencies and customers get better service.
Answer: E
Objective: 7.2
42) As you enter your favourite store looking for a graduation gift for your cousin, you notice the
signs suspended from the ceiling: Men's, Women's, Children's, Infant's. The store is
departmentalized by
A) geography.
B) customer.
C) function.
D) product.
E) process.
Answer: B
Objective: 7.2
12
43) A machine shop has arranged all the drill presses in one area, all the lathes in another, all the
surface grinders in still another, etc. Because of the differences in equipment and operator skills,
the machine shop has chosen departmentalization by
A) process.
B) function.
C) customer.
D) product.
E) geography.
Answer: A
Objective: 7.2
44) Which organizational structure is a company using if it has departments such as marketing,
manufacturing, legal, and human resources?
A) Functional
B) Product
C) M.M.H.L. structure
D) Process
E) Customer
Answer: A
Objective: 7.2
45) With regard to the issue of geographic vs. product departmentalization, it is correct to say
that
A) it is generally fairly easy for managers to decide whether to use geographical or product
departmentalization.
B) geographic departmentalization reduces the likelihood of duplicate production and other
facilities.
C) geographic departmentalization may lead to compartmentalization of knowledge in each
geographic area.
D) many years ago it made more sense to use product departmentalization, but now more and
more companies are moving to geographic departmentalization.
E) PepsiCo was formerly organized around product areas, but it recently moved to geographic
Answer: C
Objective: 7.2
13
46) The development of the decision-making hierarchy is a three-step process that involves
A) researching information, evaluating information, and distributing information.
B) centralizing resources, assigning tasks, and delegating responsibility.
C) assigning tasks, performing tasks, and distributing authority.
D) outsourcing work, monitoring progress, and insourcing finished products.
E) none of these.
Answer: C
Skill: Knowledge
Objective: 7.3
47) Which of the following best describes responsibility?

A) The liability of subordinates for accomplishing tasks assigned by managers
B) The power to make the decisions necessary to complete a task
C) The assignment of a task, responsibility, or authority by a manager to a subordinate
D) The duty to perform an assigned task
E) The number of people supervised by one manager
Answer: D
Objective: 7.3
48) Which of the following best describes authority?

A) The assignment of a task, responsibility, or authority by a manager to a subordinate
B) The power to make the decisions necessary to complete a task
C) The number of people supervised by one manager
D) The liability of subordinates for accomplishing tasks assigned by managers
E) The duty to perform an assigned task
Answer: B
Objective: 7.3
49) Which of the following best describes delegation?

A) The duty to perform an assigned task
B) The liability of subordinates for accomplishing tasks assigned by managers
C) The assignment of a task, responsibility, or authority by a manager to a subordinate
D) The power to make the decisions necessary to complete a task
E) The number of people supervised by one manager
Answer: C
Objective: 7.3
14
50) ________ is the assignment of a task, responsibility, or authority by a manager to a
subordinate.
A) Delegation
B) Decentralization
C) Centralization
D) Responsibility
E) Authority
Answer: A
Skill: Knowledge
Objective: 7.3
51) Which of the following best describes accountability?

A) The assignment of a task, responsibility, or authority by a manager to a subordinate
B) The number of people supervised by one manager
C) The duty to perform an assigned task
D) The liability of subordinates for accomplishing tasks assigned by managers
E) The power to make the decisions necessary to complete a task
Answer: D
Objective: 7.3
52) Which of the following best describes responsibility?

A) The power to make the decisions necessary to complete a task
D) The duty to perform an assigned task
E) The need to prove satisfactory work performance
Answer: D
Objective: 7.3
53) Which of the following best describes authority?

A) The power to make the decisions necessary to complete a task
D) The ability to take on new responsibility
E) The duty to perform an assigned task
Answer: A
Objective: 7.3
15
54) Bob has had some problems with some of the tasks that he has assigned to his subordinates
not getting completed properly. The most likely problem would be that
A) he has assigned authority without assigning responsibility or accountability.
B) he has not assigned authority, accountability, or responsibility.
C) he has assigned responsibility and accountability without giving the necessary authority.
D) he has assigned authority and responsibility without assigning accountability.
E) none of these.
Answer: C
Objective: 7.3
55) Once a task has been assigned to a subordinate, the subordinate owes the manager
A) delegation.
B) span of control.
C) authority.
D) responsibility.
E) accountability.
Answer: E
Skill: Knowledge
Objective: 7.3
56) Which of the following is an advantage of delegation?

A) Increases work skills of subordinates
B) Permits the manager to focus on the day-to-day operations
C) Makes it easier to punish workers who perform tasks poorly
D) Permits the manager to exercise closer control over subordinates
E) Subordinates are not held accountable for tasks assigned by delegation
Answer: A
Objective: 7.3
57) You are the manager of the Marketing Department. In order to get office and art supplies,
you must submit a purchase requisition. Company policy states that you can only approve up to
$500, but any more must have the signature of your boss. Based on this, you are probably
lacking in which of the following?
A) Accountability
B) Delegation
C) Span of control
D) Responsibility
E) Authority
Answer: E
Objective: 7.3
16
58) At Roger's company, new products are developed using a team approach. The vice-
presidents of production, marketing, finance, and engineering meet weekly to cover topics of
common interest and new products are usually on the agenda. Recently, there have been
numerous delays in the launching of most of the new products and along with the delays has
come much finger-pointing. Which of the following items is lacking in this situation and
probably a major cause for the poor performance?
A) Authority
B) Span of control
C) Responsibility
D) Delegation
E) Accountability
Answer: C
Objective: 7.3
59) Scott's management style is one where he gets his subordinates heavily involved in
department activities. After assigning specific tasks, he follows up with them to be sure that they
are completing the assigned activities. What is Scott's assigning of activities called?
A) Authority
B) Responsibility
C) Accountability
D) Span of control
E) Delegation
Answer: E
Objective: 7.3
60) Scott's management style is one where he gets his subordinates heavily involved in
department activities. After assigning specific tasks he follows up with them to be sure that they
are completing the assigned activities. What is the name for the duty that Scott believes his
subordinates owe him?
A) Span of control
B) Responsibility
C) Authority
D) Delegation
E) Accountability
Answer: E
Objective: 7.3
17
61) When delegating authority, managers should keep all the following points in mind except
A) deciding on the nature of the work to be done.
B) matching the job with the skills of subordinates.
C) checking up on subordinates frequently to ensure that they do not make mistakes.
D) making sure the person chosen understands the objectives he or she is supposed to achieve.
E) making sure subordinates have the time and training necessary to do the task.
Answer: C
Objective: 7.3
62) What kind of organization becomes more responsive to its environment by breaking the
company into more manageable units?
A) Centralized
B) Decentralized
C) Functional
D) Process-oriented
E) Brand conscious
Answer: B
Objective: 7.3
63) In order to ensure standardization at McDonald's, most lower-level decisions must be

approved by upper management. Which of the following terms applies to this strategy?
A) Centralized organization
B) Decentralized organization
C) Functional authority
D) Responsibility
E) Wide span of control
Answer: A
Objective: 7.3
64) What is the main organizational characteristic of decentralized firms?

A) Flat
B) Tall
C) Diverse
D) Multi-layered
E) Matrix
Answer: A
Objective: 7.3
18
65) Where a quick response time is critical, ________ is typically used.
A) functional authority
B) a narrow span of control
C) centralized decision making
D) team authority
E) decentralized decision making
Answer: E
Skill: Knowledge
Objective: 7.3
66) Which statement about organizational structure is true?

A) Decentralized firms tend to have many layers of management.
B) As a company gets larger, it tends to adopt a decentralized structure.
C) The purpose of centralization is to make a company more responsive to a changing, complex
environment.
D) In a centralized organization, most decision-making authority is held by lower-level
managers.
E) Decentralized companies must change to centralized structures in response to unpredictable
environments.
Answer: B
Skill: Knowledge
Objective: 7.3
67) What does the term span of control refer to?

A) The time span that is required to complete a delegation task
B) The width of the manager's authority
C) The number of subordinates a manager supervises
D) The vertical span of levels in an organization
E) None of these
Answer: C
Skill: Knowledge
Objective: 7.3
68) Which of the following is likely to be evident at a small, owner-operated firm?

A) Decentralization
B) Functional authority
C) Team authority
D) A narrow span of control
E) Centralization
Answer: E
Objective: 7.3
19
69) What type of decision-making structure is used when upper management must approve lower
level decisions?
A) Authority structure
B) Supervisory check/recheck system
C) Centralized
D) Delegation
E) Decentralized
Answer: C
Objective: 7.3
70) In which organization type is decision-making authority delegated to lower level managers
so they can be more responsive to customers' needs?
A) Centralized
B) Quasi-centralized
C) Span of control
D) Chain of command
E) Decentralized
Answer: E
Objective: 7.3
71) What are the circumstances under which decision-making authority is likely to be
decentralized?
A) A company where managers practice little delegation
B) A company where the top managers control everything
C) A small owner-operated company
D) A large organization where top managers cannot personally supervise every detail
E) When high dollar value decisions are made
Answer: D
Objective: 7.3
72) An organization that begins to eliminate management levels in a "downsizing" restructuring

is moving toward
A) a tall, centralized structure.
B) a line organization.
C) an informal organization.
D) a flat, decentralized structure.
E) It is not possible to tell with this information.
Answer: D
Objective: 7.3
20
73) The term "span of control" refers to
A) the accountability to complete tasks.
B) the organizational level which makes most of the decisions.
C) the number of people that one supervisor can manage.
D) the number of management levels within the organization.
E) the number of specialists in the organization, such as engineers and accountants.
Answer: C
Skill: Knowledge
Objective: 7.3
74) The greater the ________, the wider the span of control is likely to be, while the greater the
________, the narrower the span of control is likely to be.
A) complexity of the task; employees' abilities
B) the supervisor's managerial skills; interrelationship of the tasks
C) uniqueness of the task; routineness of the task
D) interrelationship of the tasks; the supervisor's managerial skills
E) complexity of the task; the supervisor's managerial skills
Answer: B
Objective: 7.3
75) Which of the following items would tend to support narrower spans of control?
A) Subordinates work independently of each other.
B) Subordinates perform complex tasks.
C) Subordinates perform diverse tasks.
D) Tasks are not routine.
Answer: E
Objective: 7.3
76) Which of the following items would tend to support wider spans of control as the best
choice?
A) Subordinates perform complex tasks.
B) Subordinates work independently of each other.
C) Subordinates perform non-routine tasks.
D) Subordinates perform diverse tasks.
E) One subordinate's tasks relies on another subordinate's tasks.
Answer: E
Objective: 7.3
21
77) What type of authority flows up and down the chain of command?
A) Team authority
B) Reverse vertical authority
C) Specialists' authority
D) Line authority
E) Staff authority
Answer: D
Skill: Knowledge
Objective: 7.3
78) Kara is an accounts receivables clerk in the accounting department. Her boss is Tina who
oversees the work of several clerks. The type of authority which Tina has is
A) command authority.
B) staff authority.
C) line authority.
D) committee and team authority.
E) direct authority.
Answer: C
Objective: 7.3
79) Line authority covers those people who ________, while staff authority covers those people
who ________.
A) are indirectly involved in producing goods or services; are directly involved in producing
goods or services
B) advise line managers; advise staff managers
C) advise staff managers; do things
D) are directly involved in producing goods or services; provide professional advice to line
managers
E) are in human resource departments; are involved in manufacturing or sales
Answer: D
Objective: 7.3
80) Which of the following would have staff authority in a manufacturing firm?
A) Painting department chief
B) Machine shop foreman
C) Corporate attorney
D) Assembly line worker
E) Packing and shipping department head
Answer: C
Objective: 7.3
22
81) Ted, the human resources manager, is reviewing a batch of resumes that are in response to a
job advertisement in a local paper. After selecting six candidates, the resumes are sent to the
sales manager for selection of the candidates to be interviewed. Ted has what kind of authority?
A) Line authority
B) Expert authority
C) Staff authority
D) Direct authority
E) Command authority
Answer: C
Objective: 7.3
82) A group of top managers has been selected to guide the restructuring of the company's
business. Because of the critical nature of its activities, the group has been granted
A) line authority.
B) committee and team authority.
C) staff authority.
D) executive authority.
E) temporary authority.
Answer: B
Objective: 7.3
83) Departments which are directly linked to the production or sales of revenue-generating
products are
A) staff departments.
B) function critical departments.
C) line departments.
D) matrix departments.
E) none of these.
Answer: C
Skill: Knowledge
Objective: 7.3
23
84) Employees with specific areas of expertise like accounting, law, and human resources, are
usually given ________ authority, while managers of areas like production, finance, and
marketing are usually given ________ authority.
A) line; staff
B) staff; line
C) functional; staff
D) team; staff
E) none of these
Answer: B
Objective: 7.3
85) Geoff is a legal expert for Marks Inc. His special expertise involves counseling and advising
other managers. This illustrates
A) functional authority.
B) counseling authority.
C) line authority.
D) human resource authority.
E) staff authority.
Answer: E
Objective: 7.3
86) What is the difference between line managers and staff managers?
A) Staff managers have no authority over their subordinates, while line managers do.
B) Line managers usually have more formal education than staff managers.
C) Line managers are more important.
D) In a manufacturing firm, line managers are involved in areas like marketing and production,
while staff managers work in areas like personnel, and legal.
E) Staff managers have more authority than line managers.
Answer: D
Objective: 7.3
24
87) In a firm that does marketing research for other firms, which of the following would be line
positions?
A) Market researchers
B) Accountants
C) Legal experts
D) Human resource people
E) It is not possible to tell.
Answer: A
Objective: 7.3
88) All of the following are either advantages or disadvantages of the functional structure except
A) no single function is responsible for overall organizational performance.
B) employees have clearly defined career paths.
C) increases in accountability.
D) focusing attention on the key activities that must be performed.
E) conflicts may arise among the functional areas.
Answer: C
Objective: 7.4
89) Scott has reviewed the organizational structure of his company and found that there is a lot
of specialization within each area, employees seem to have clearly defined career paths, and that
there is little duplication of activities. He is most likely working in a company with a(n)
________ structure.
A) international
B) divisional
C) functional
D) conglomerate
E) matrix
Answer: C
Objective: 7.4
90) What is an advantage of the functional organization structure?

A) The members of the organization speak a foreign language.
B) The organization is staffed with people who have expert knowledge about the product.
C) Coordinating highly specialized functions is easy.
D) Members of the organization report to two or more managers.
E) The functions are performed by experts in their field.
Answer: E
Objective: 7.4
25
91) Which of the following is not an advantage of the divisional structure?
A) Activities may be duplicated across divisions.
B) Training for top management is encouraged.
C) Accountability is increased.
D) Developing expertise in the various divisions occurs.
E) Change and expansion are facilitated.
Answer: A
Objective: 7.4
92) Michael is analyzing the structure of his new employer. The company is highly flexible and
can readily adapt to changing circumstances. Employees report to two separate supervisors. The
firm is probably using the ________ structure.
A) matrix
B) functional
C) conglomerate
D) divisional
E) international
Answer: A
Objective: 7.4
93) The organization of the health care producer Johnson & Johnson includes consumer health
care products, medical devices and diagnostics, and pharmaceuticals. What kind of
organizational structure does this company use?
A) Functional
B) Process
C) Geographic
D) Divisional
E) Committee
Answer: D
Objective: 7.4
26
94) Which of the following is the best explanation of a matrix structure?
A) Teams are formed in which employees report to two or more managers.
B) A matrix structure is based on the geographical area of the world.
C) A matrix occurs when one firm purchases another and combines the staff activities.
D) A matrix occurs when the organization is restructuring from a tall to a flat organization.
E) A matrix divides the organization into divisions, each of which operates as a semi-
autonomous unit.
Answer: A
Objective: 7.4
95) At PepsiCo, each of the company's three major beverage brands (Pepsi, Gatorade, and
Tropicana) were formerly in separate departments. They competed for the same resources and
there was very little coordination and sharing of information between them. This illustrates one
of the problems with the ________ structure.
A) functional
B) international
C) matrix
D) conglomerate
E) divisional
Answer: E
Objective: 7.4
96) Gerry owns a company that employs 78 people. His company would most likely have a(n)
________ structure.
A) functional
B) international
C) matrix
D) conglomerate
E) divisional
Answer: A
Objective: 7.4
27
97) As companies get larger and more complex, they are likely to move away from the ________
structure.
A) matrix
B) international
C) functional
D) divisional
E) conglomerate
Answer: C
Objective: 7.4
98) At Ace Products, three vice-presidents report to the CEO, including the VP for Finance, the
VP for Marketing, and the VP for Operations. What type of structure does Ace Products have?
A) Divisional
B) Matrix
C) Regional
D) Functional
E) International
Answer: D
Objective: 7.4
99) Which of the following is an advantage of a functional structure?

A) Functional areas get approval from top management for a variety of decisions.
B) Expertise develops within each function.
C) No single function is responsible for overall company performance.
D) Conflicts between functional areas may arise.
E) None of these are correct.
Answer: B
Objective: 7.4
100) Which of the following is correct with regard to divisional structures?

A) Unhealthy competition may arise between the divisions.
B) The different divisions all pursue the same corporate identity.
C) Different divisions do not share certain corporate-level resources like market research data.
D) If a lot of control is delegated to divisional managers, corporate managers have a better
understanding of daily operations in the divisions.
E) There is little duplication of effort because the various divisions must work together to
achieve overall corporate objectives.
Answer: A
Objective: 7.4
28
101) All of the following are advantages of the divisional structure except
A) the structure facilitates the development of expertise in various areas of the company.
B) the structure encourages training for top management.
C) the structure increases accountability.
D) the structure accommodates change and expansion.
E) the structure focuses attention on the key activities that must be performed.
Answer: E
Objective: 7.4
102) Organizations in which traditional structures are minimized or eliminated are called
________ organizations.
A) learning
B) matrix
C) Smith's
D) boundaryless
E) international
Answer: D
Skill: Knowledge
Objective: 7.4
103) In ________ organizations, people "float" from project to project as dictated by their skills
and the demands of the project.
A) learning
B) virtual
C) team
D) boundaryless
E) international
Answer: C
Skill: Knowledge
Objective: 7.4
104) ________ and ________ organizations are closely related because in both of them people
are constantly moving around to different jobs as dictated by the work that is being done.
A) Virtual; functional
B) Functional; project
C) Matrix; team
D) Team; virtual
E) Divisional; functional
Answer: D
Skill: Knowledge
Objective: 7.4
29
105) When clients of Global Research Consortium request various services, the staff of three
permanent employees contracts out the work to people with appropriate skills. GRC is therefore
a(n) ________ organization.
A) virtual
B) team
C) international
D) boundaryless
E) learning
Answer: A
Objective: 7.4
106) A ________ organization has little or no formal structure, with only a handful of permanent
employees.
A) learning
B) flexible
C) boundaryless
D) team
E) virtual
Answer: E
Skill: Knowledge
Objective: 7.4
107) With regard to organizational design for the twenty-first century, it is correct to say that
A) the boundaryless organization has become the most popular structure in the twenty-first
century.
B) the team organization relies almost exclusively on the hierarchy to get work done.
C) the virtual organization is the opposite of the team organization.
D) the most frequent goals of a virtual organization are improved quality, continuous
improvement, and performance measurement.
E) the boundaryless organization is evident at Walmart because some of its key suppliers are tied
directly into Walmart's information system.
Answer: E
Objective: 7.4
30
108) A ________ organization focuses on employee development and continually transforming
itself to respond to changing demands and needs.
A) team
B) learning
C) boundaryless
D) project
E) virtual
Answer: B
Skill: Knowledge
Objective: 7.4
109) Which of the following organizational systems is the part that can be seen and represented
in chart form?
A) Formal organization
B) Grapevine
C) Informal organization
D) Normal organization
E) Product organization
Answer: A
Objective: 7.5
110) Which of the following is correct with regard to the informal organization?
A) The informal organization exists in every organization.
B) All things considered, the informal organization is not a good thing because it often opposes
what the formal organization wants to do, and this reduces organizational effectiveness.
C) The grapevine generally follows the same patterns as formal channels of authority and
communication, but it carries different information.
D) If managers provide clear information to subordinates, this will eliminate the need for the
grapevine.
E) The informal organization cannot be more powerful than the formal organization.
Answer: A
Objective: 7.5
31
111) The type of organization within which people do their jobs in different ways and interact
with other people in ways that do not follow formal lines of communication is called the
A) divisional organization.
B) international organization.
C) rational organization.
D) informal organization.
E) matrix organization.
Answer: D
Skill: Knowledge
Objective: 7.5
112) Everyday social interactions among employees that transcend formal jobs and job
interrelationships are called the
A) informal organization.
B) formal organization.
C) process organization.
D) gossip structure.
E) production organization.
Answer: A
Skill: Knowledge
Objective: 7.5
113) ________ are groups of people who decide to interact among themselves.
A) Staff members
B) Grapevines
C) Line departments
D) Informal groups
E) Matrix structures
Answer: D
Skill: Knowledge
Objective: 7.5
114) The ________ is an informal communication network that runs through an organization.
A) grapevine
B) intrapreneur
C) intranet
D) span of control
E) message centre
Answer: A
Skill: Knowledge
Objective: 7.5
32
115) Which of the following is correct with regard to the grapevine?
A) Managers can eliminate the grapevine, but it takes a lot of time and effort to do so.
B) All things considered, it is best for the manager to ignore the grapevine because the accuracy
of the information it carries is inconsistent and unpredictable.
C) The grapevine is an early warning system, so managers should pay attention to it.
D) Managers cannot have an influence on the information carried by the grapevine because it is
controlled by the informal organization.
Answer: C
Objective: 7.5
116) Which of the following is a disadvantage of informal communications?

A) Managers can easily interrupt the flow of information which the employees may believe to be
important.
B) Good news may spread very rapidly through the informal channel.
C) It flows through the chain of command.
D) Rumours and distorted or inaccurate information may be flowing through the grapevine at a
fast rate.
E) Studies have shown that the rumours and gossip on the grapevine are almost always accurate.
Answer: D
Objective: 7.5
117) Gerry, president of Erin Enterprises, knew he had to lay off 5% of his employees in order to
stay profitable. Gerry wanted to ease the aggravation of telling his employees, so he used the
________ prior to his formal announcement.
A) matrix strategy
B) virtual method
C) grapevine
D) virtual organization
E) "keep-'em-in-the-dark" strategy
Answer: C
Objective: 7.5
33
118) When musicians and singers at the New York Metropolitan Opera play poker during
intermissions, this is an example of
A) poor control by management.
B) informal groups.
C) the grapevine.
D) rumours.
E) unethical employee behaviour.
Answer: B
Objective: 7.5
119) The specification of the jobs to be done within a business and how those jobs relate to one
another is which of the following?
A) Organization hierarchy
B) Organizational structure
C) Organizational matrix
D) Organizational job chart
E) Organizational map
Answer: B
Skill: Knowledge
Objective: 7.1
ESL: Alternate/ESL
120) What are the reporting relationships within a company called?

A) Chain of command
B) Reporting hierarchy
C) Supervising structure
D) Superior/subordinate chart
E) Accountability map
Answer: A
Skill: Knowledge
Objective: 7.1
ESL: Alternate/ESL
34
121) What is a physical depiction of the company's structure showing employee titles and their
relationships called?
A) Organizational matrix
B) Organizational structure
C) Organizational map
D) Organizational hierarchy
E) Organizational chart
Answer: E
Skill: Knowledge
Objective: 7.1
ESL: Alternate/ESL
122) Which of the following is the process of identifying the specific jobs that need to be done
and designating the people who will perform them?
A) Job descriptions
B) Job identification
C) Job structure
D) Job specialization
E) Job placement
Answer: D
Skill: Knowledge
Objective: 7.2
ESL: Alternate/ESL
123) What is the process of grouping jobs into logical units called?
A) Departmentalization
B) Division allocation
C) Structuring
D) Reorganizing
E) Teaming
Answer: A
Skill: Knowledge
Objective: 7.2
ESL: Alternate/ESL
35
124) Departmentalization according to operations or activities is which of the following?
C) Role departmentalization
D) Customer departmentalization
E) Specialization departmentalization
Answer: A
Skill: Knowledge
Objective: 7.2
ESL: Alternate/ESL
125) What kind of departmentalization is done according to the types of consumers likely to buy
a given product?
A) Customer
B) Functional
C) Demographic
D) Client
E) Shopper
Answer: A
Skill: Knowledge
Objective: 7.2
ESL: Alternate/ESL
126) Departmentalization according to the units being created or sold is called which of the
following?
A) Process departmentalization
B) Customer departmentalization
C) Functional departmentalization
D) Item departmentalization
E) Product departmentalization
Answer: E
Skill: Knowledge
Objective: 7.2
ESL: Alternate/ESL
36
127) Which of the following is departmentalization according to the production method used to
create a good or service?
A) Customer
B) Process
C) Manufacturing
D) Functional
E) Technique
Answer: B
Skill: Knowledge
Objective: 7.2
ESL: Alternate/ESL
128) What type of departmentalization is done according to the area of the country or part of the
world they serve?
A) Regional
B) District
C) Provincial
D) Geographic
E) Zone
Answer: D
Skill: Knowledge
Objective: 7.2
ESL: Alternate/ESL
129) What is the power to make decisions necessary to complete a task called?
A) Command
B) Authority
C) Jurisdiction
D) Dominion
E) Licence
Answer: B
Skill: Knowledge
Objective: 7.3
ESL: Alternate/ESL
37
130) What is the assignment of a task or a responsibility by a manager to a subordinate called?
A) Downloading
B) Offloading
C) Outsourcing
D) Delegation
E) Relegation
Answer: D
Skill: Knowledge
Objective: 7.3
ESL: Alternate/ESL
131) What is the obligation of subordinates to accomplish tasks and justify outcomes to
managers called?
A) Culpability
B) Dependability
C) Answerable
D) Responsibility
E) Accountability
Answer: E
Skill: Knowledge
Objective: 7.3
ESL: Alternate/ESL
132) When top managers retain most decision-making rights for themselves this is referred to as
which of the following?
A) Decentralized organization
B) Flat structure
C) Matrix structure
D) Centralized organization
E) Top heavy structure
Answer: D
Skill: Knowledge
Objective: 7.3
ESL: Alternate/ESL
38
133) What is it called when lower and middle-level managers can make significant decisions?
A) Decentralized organization
B) Centralized organization
C) Tall structure
D) Matrix structure
E) Autonomous structure
Answer: A
Skill: Knowledge
Objective: 7.3
ESL: Alternate/ESL
134) What is the number of people managed by one manager called?

A) Team
B) Span of control
C) Division
D) Worker unit
E) Employee group
Answer: B
Skill: Knowledge
Objective: 7.3
ESL: Alternate/ESL
135) Which of the following is the planned reduction in the scope of an organization's activity?
A) Scale down
B) Retrenchment
C) Reallocation
D) Phase out
E) Downsizing
Answer: E
Skill: Knowledge
Objective: 7.3
ESL: Alternate/ESL
39
136) Which type of authority flows in a direct chain of command from the top of the company to
the bottom?
A) Staff
B) Direct
C) Top down
D) Line
E) Managerial
Answer: D
Skill: Knowledge
Objective: 7.3
ESL: Alternate/ESL
137) Which type of authority is based on expertise and usually involves advising line managers?
A) Staff
B) Expert
C) Professional
D) Line
E) Master
Answer: A
Skill: Knowledge
Objective: 7.3
ESL: Alternate/ESL
138) Various units that are included in a group based on actions that need to be performed for the
organization to reach its goals is referred to as which of the following?
A) Product structure
B) Process structure
C) Functional structure
D) Divisional structure
E) Matrix structure
Answer: C
Skill: Knowledge
Objective: 7.4
ESL: Alternate/ESL
40
139) Which of the following uses teams of specialists to complete specific projects?
A) Project organization
B) Functional structure
C) Product structure
D) Process organization
E) Divisional structure
Answer: A
Skill: Knowledge
Objective: 7.4
ESL: Alternate/ESL
140) Which of the following is a variation of the project structure in which the project manager
and the regular line managers share authority?
A) Matrix
B) Functional
C) Process
D) Cross
E) Divisional
Answer: A
Skill: Knowledge
Objective: 7.4
ESL: Alternate/ESL
141) What type of organizational structure is designed to help a company succeed in

international markets called?
A) Global
B) International
C) Cross border
D) Cosmopolitan
E) Multinational
Answer: B
Skill: Knowledge
Objective: 7.4
ESL: Alternate/ESL
41
142) What is a network of personal interactions and relationships among employees unrelated to
the firm's formal authority structure called?
A) Grapevine
B) Social circle
C) Clique
D) Faction
E) Informal organization
Answer: E
Skill: Knowledge
Objective: 7.5
ESL: Alternate/ESL
143) Which of the following is the term for an informal communications network that carries
gossip and other information throughout an organization?
A) Rumour mill
B) Watercooler talk
C) Grapevine
D) Innuendo
E) Cafeteria chatter
Answer: C
Skill: Knowledge
Objective: 7.5
ESL: Alternate/ESL
42
7.2 Critical Thinking Questions
1) At Appleson Publishing, products are produced by a team representing different functional

groups, none of which have supervisory authority over any of the others. Represented
departments include design, production, and marketing.
Design department members are skilled at identifying customer requirements and creating
product specifications. Their success is measured by return on product investment, which
considers both the money earned by a product and the money spent on that product.
Production department members are skilled at project execution. They are responsible for
creating products according to the Design department members' specification. The Production
department is considered successful when it completes projects according to schedule and project
spending does not exceed the project's budget.
Marketing department members are responsible for building profitable relationships with target
market segments. They are skilled at communicating a product's value and persuading customers
to make purchases. Marketing department members' success is measured by the revenue that the
products take in.
Which of the following questions would most likely lead to a conflict between design department
members and production department members?
A) Should Appleson invest in a new project that requires heavy initial investment but is expected
to lead to a large stream of revenue in the long run?
B) Should a project be launched later than planned in order to make changes that will make it
more attractive to customers?
C) Should product management focus on the needs that customers have already expressed, or
should it try to anticipate unexpressed needs?
D) Is the team project process at Appleson more effective than it would be if it followed a more
traditional organizational structure?
E) When projects do not meet expectations, is the failure likely to be caused by faulty product
design or inadequate market development?
Answer: B
Diff: 3 Type: MC
Skill: Analysis
43
products take in.
Executives claim that this division of labour keeps employees focused on the tasks that fit their
skills and leads to a better product. Which of the following, if true, would strengthen that claim?
A) During every project, design department members spend a large amount of time consulting
with marketing department members to learn how the marketing department will attempt to sell
the completed project.
B) When environmental changes that take place after the project has been launched make the
project unattractive to customers, the production department attempts to complete the project
according to the original schedule and budget.
C) After a product specification is completed, knowledge of the thinking that went into the
product specification is not necessary to complete the project effectively.
D) The team process is based on the process that Appleson's executives used during the era of
print-only product development.
E) The reasoning behind the team process is presented to new employees as part of their initial
orientation.
Answer: C
Diff: 3 Type: MC
Skill: Analysis
44
products take in.
Which of the following, if true, would weaken the claim that this division of labour keeps
employees focused on the tasks that fit their skills and leads to a better product?
A) Some employees who work in the marketing department used to work in the design
department.
B) Projects often fail to meet their revenue goals because the design department develops
products for market segments that the marketing department cannot reach.
C) Projects are often late because of product distribution problems that occur after the project is
completed.
D) The number of projects that fail because they do not meet their revenue goals is lower than
the number of projects that fail because they go too far over budget.
E) Projects often are unprofitable because of changes in the external environment that could not
have been predicted before the project started.
Answer: B
Diff: 3 Type: MC
Skill: Analysis
4) All-Canadian Burger is a nationwide fast food chain that competes with McDonald's, Burger
King, and Wendy's. Management at All-Canadian Burger is debating whether to have a more
centralized or a more decentralized organizational structure.
Which of the following, if true, would most strongly support the conclusion that All-Canadian
Burger should operate in a highly centralized manner?
A) All-Canadian Burger restaurants are spread over a large geographic area.
B) A greater number of managers have expressed an interest in making policy.
C) Entry-level workers at All-Canadian Burger are likely to be part-time or flex-time employees.
D) The organizations that choose more centralized operations are likely to be organizations in
crisis.
E) Customers choose All-Canadian Burger in large part because of the consistency of the dining
experience.
Answer: E
Diff: 3 Type: MC
Skill: Analysis
45
5) All-Canadian Burger is a nationwide fast food chain that competes with McDonald's, Burger
King, and Wendy's. Management at All-Canadian Burger is debating whether to have a more
centralized or a more decentralized organizational structure.
Which of the following, if true, would most strongly support the conclusion that All-Canadian
Burger should adopt a decentralized approach?
A) The value of a decentralized approach has been a popular topic in academic research.
B) A large percentage of All-Canadian Burger's revenue comes from a small number of menu
items.
C) The popularity of All-Canadian Burger's special menu items has varied greatly across
different regions.
D) All-Canadian Burger has been growing more quickly than most of its major competitors.
E) A well-publicized instance of discrimination at a single All-Canadian Burger can alter the
public's perception of the entire company.
Answer: C
Diff: 3 Type: MC
Skill: Analysis
6) Tarnopol Learning Services (TLS) offers tutoring to high school students, college students,
and adults returning to school. TLS also bids on government-sponsored contracts. TLS's major
product offerings include academic tutoring, standardized test preparation, and admissions
consulting. Its operations spread over many geographic regions. Currently, the company is
deciding whether it should change from its current approach of organizing by geographical area.
A senior manager has predicted that if TLS is not profitable this year and fails to develop any
new products, the company will switch to either a functional approach or a product approach.
Which of the following, if true, would strengthen the argument that TLS should change its
organizational structure?
A) TLS values corporate social responsibility as well as profitability.
B) New product offerings have been neglected as divisions have focused on traditional revenue
sources.
C) TLS division managers have focused on short-term revenue at the expense of developing
profitable relationships with long-term customers.
D) The markets TLS serves have different requirements in different geographic areas.
E) The expected revenue of some of the regional divisions is higher than that of some of the
other divisions.
Answer: B
Diff: 3 Type: MC
Skill: Analysis
46
Which of the following, if true, would most strongly suggest that TLS should change its
organizational structure to a product-based approach?
A) The largest growth area for TLS is governmental contracts, which have buying procedures
that are very different from those of other customers.
B) TLS currently maintains separate accounting departments in each of its regions.
C) To be effective, TLS managers need to be experts in at least one of the products that TLS
sells.
D) TLS hopes to build sustained relationships with customers, selling the same person academic
tutoring, standardized test preparation, and admissions consulting.
E) Communication between different marketing departments in different regions has been
substandard.
Answer: C
Diff: 3 Type: MC
Skill: Analysis
Which of the following, if true, would most strongly suggest that TLS should change its
organizational structure to a functional-based approach?
A) TLS currently maintains separate human resource departments in each of its regions.
B) Research suggests that product development failures happened because the product
developers were isolated from customers.
C) TLS earns large streams of revenue from services it offers to schools.
D) In the current regional structure, managers complain about having a limited view of
organizational goals.
E) Sales techniques that work in one region are often much less effective in other regions.
Answer: A
Diff: 3 Type: MC
Skill: Analysis
47
If the senior manager's prediction is accurate, which of the following is a reasonable assumption?
A) If TLS does not change to either a product approach or a functional approach, then it will not
change its organizational approach at all.
B) If TLS is not profitable this year and fails to develop any new products, the company will first
switch to a functional approach and then to a product approach.
C) If TLS is profitable, then it could organize itself by customer groups.
D) If TLS does not change to either a product approach or a functional approach, then it could
not have been profitable this year.
E) If TLS does not change to either a product approach or a functional approach, then it could
not have developed any new products.
Answer: C
Diff: 3 Type: MC
Skill: Analysis
48
10) Wilson Communication Devices manufactures walkie-talkies for use in a business
environment, primarily in the industrial manufacturing industry. The walkie-talkies are small and
lightweight and do not interfere with Wi-Fi or radio signals that the companies may use for other
purposes. Wilson's walkie-talkies typically are used for communication between workers in
high-noise environments, such as automobile manufacturing, welding shops, and construction
sites. They can be used to talk or text, depending on the noise level, and contain a feature that
allows the worker to input information and store it for later use.
Since Wilson sells its walkie-talkies only to businesses, it needs to consider factors that affect
business buying centres, such as organizational influences and individual factors. Two
salespeople for Wilson are arguing over which set of factors is more important to consider when
making a sale. Bill argues that organizational influences such as company goals and operating
environment are more important. Aubrey argues that individual factors of the buyer are more
important. Which of the following statements, if true, would support Bill's stand for
organizational influences?
A) Company V has liquid assets and a firm financial standing, even during the economic
downturn. It determines it can afford to buy new equipment like Wilson walkie-talkies in order
to upgrade its manufacturing process.
B) Kirk, the buyer for Company W, cannot stand Bill, and therefore refuses to buy any Wilson
walkie-talkies from him. However, he will order them from Aubrey.
C) Carl authorizes purchases for Company X, but he is very concerned about making a large
purchase without the input of his CEO.
D) The buyer at Company Y is motivated to advance his career as quickly as possible. Therefore,
he completes a thorough research project on Wilson walkie-talkies: He compares other available
walkie-talkies, researches price comparisons, and analyzes their use in his company.
E) Company Z has never purchased Wilson walkie-talkies because the secretary has never
passed along the information from any of the sales calls made by Wilson reps.
Answer: A
Diff: 3 Type: MC
Skill: Analysis
49
11) Wilson Communication Devices manufactures walkie-talkies for use in a business
environment, primarily in the industrial manufacturing industry. The walkie-talkies are small and
lightweight and do not interfere with Wi-Fi or radio signals that the companies may use for other
purposes. Wilson's walkie-talkies typically are used for communication between workers in
high-noise environments, such as automobile manufacturing, welding shops, and construction
sites. They can be used to talk or text, depending on the noise level, and contain a feature that
allows the worker to input information and store it for later use.
In the business-to-business buying process, the buyer goes through a variety of steps before
making a purchase. Included in these steps are identifying needs and vendors, evaluating
vendors, and negotiating terms. Hollis, a salesman for Wilson, understands this process and
provides a detailed pre-contract PowerPoint program for each company that he approaches.
Which of the following statements, if true, would he not consider putting in his presentation?
A) There is a variety of ways that Wilson walkie-talkies can be used to maximize the
communications of the business, as well as reduce overhead by eliminating communication
errors.
B) Next, I'll identify competitors' products and detail why Wilson walkie-talkies are superior.
C) I'm including here an audit report and licensing credentials for Wilson.
D) Shown here are a variety of ways that Wilson walkie-talkies can also be used in a home
situation.
E) Displayed is a table detailing the cost per unit and how the unit costs decrease with order size.
Answer: D
Diff: 3 Type: MC
Skill: Analysis
12) Interstate Insurance is looking to upgrade the company's information technology; the
company needs to prioritize its needs and find out in what areas the company needs to improve.
Many at Interstate feel that the information systems at the company are not sufficiently tailor-
made to each of the functions of the different departments. Which of the following issues is most
relevant to deciding whether this should be a priority?
A) The degree to which the various departments differ in their work functions
B) The last time that employees' hardware at their workstations was updated
C) The extent to which customers are satisfied with their online experience with the company
D) Whether the marketing department uses data mining to get information on customers
E) Whether the company's executives are confident about the direction the company is taking
Answer: A
Diff: 3 Type: MC
Skill: Analysis
7.3 True/False Questions
1) Each company has the same basic organizational elements and thus the same basic structure.
Answer: FALSE
Diff: 1 Type: TF Page Ref: 136
Objective: 7.1
50
2) Organizational structure refers to the specification of the jobs to be done within a business and
how those jobs relate to one another.
Answer: TRUE
Skill: Knowledge
Objective: 7.1
3) An organization's structure should ideally be determined by a rational process, but for many
organizations, structure may often develop without much planning.
Answer: TRUE
Objective: 7.1
4) Organizational structure is influenced by a company's mission and size, but not by the
technology used in the company.
Answer: FALSE
Objective: 7.1
5) Most organizations change their structures on a continuing basis.

Answer: TRUE
Skill: Knowledge
Objective: 7.1
6) The chain of command shown on an organization chart reflects manager and subordinate
relationships.
Answer: TRUE
Skill: Knowledge
Objective: 7.1
7) Organization charts show the formal and informal organization structure of an organization.
Answer: FALSE
Objective: 7.1
8) Job specialization is the process of identifying the specific jobs that need to be done and
designating the people who will perform them.
Answer: TRUE
Skill: Knowledge
Objective: 7.2
51
9) The primary focus of job specialization is the elimination of unnecessary or undesirable jobs.
Answer: FALSE
Objective: 7.2
10) The two basic building blocks of all business organizations are specialization and
Answer: TRUE
Diff: 1 Type: TF Page Ref: 137-138
Skill: Knowledge
Objective: 7.2
11) In small organizations, jobs tend to be unspecialized.

Answer: TRUE
Skill: Knowledge
Objective: 7.2
12) The process of grouping together jobs into logical units is known as departmentalization.
Answer: TRUE
Skill: Knowledge
Objective: 7.2
13) Attempts to separate the work force into departments that are based on anything other than
customers have been largely unsuccessful.
Answer: FALSE
Objective: 7.2
14) Process departmentalization is based on the steps that are needed to produce a good or
service.
Answer: TRUE
Skill: Knowledge
Objective: 7.2
15) Larger firms tend to use several different types of departmentalization for various levels in
the organization.
Answer: TRUE
Objective: 7.2
52
16) After jobs are departmentalized, then they should be specialized.
Answer: FALSE
Skill: Knowledge
Objective: 7.2
17) A pickle maker like Vlasic usually has several departments that transform cucumbers into
fresh-packed pickles. Vlasic accomplishes this by using product departmentalization.
Answer: FALSE
Objective: 7.2
18) Customer departmentalization generally is more effective than geographic

Answer: FALSE
Objective: 7.2
19) Acme Oil Company has three divisions: Exploration, Extraction, and Refining. This is an
example of process departmentalization.
Answer: TRUE
Objective: 7.2
20) All things considered, functional departmentalization is the optimum organizational structure
for most organizations.
Answer: FALSE
Objective: 7.2
21) A bank that handles consumer loans in one department and commercial loans in another
department is using product departmentalization.
Answer: TRUE
Objective: 7.2
22) Assigning tasks is the first step in the process of deciding who makes which decisions.
Answer: TRUE
Skill: Knowledge
Objective: 7.3
53
23) Accountability refers to the liability of subordinates for accomplishing tasks assigned by
managers.
Answer: TRUE
Skill: Knowledge
Objective: 7.3
24) Delegation occurs when a manager assigns a task to a subordinate who then is accountable to
the manager for completion of the task.
Answer: TRUE
Skill: Knowledge
Objective: 7.3
25) Many managers have trouble delegating tasks to others.

Answer: TRUE
Skill: Knowledge
Objective: 7.3
26) Organizations use decentralization to maintain standardization.

Answer: FALSE
Objective: 7.3
27) At FedEx, the commitment to decentralization promotes innovation.

Answer: TRUE
Objective: 7.3
28) Centralized organizations usually have wide spans of control with a lot of delegation taking
place.
Answer: FALSE
Objective: 7.3
29) There are advantages and disadvantages associated with decentralization.

Answer: TRUE
Objective: 7.3
54
30) In a centralized organization, most of the decision-making authority is held by upper-level
managers.
Answer: TRUE
Skill: Knowledge
Objective: 7.3
31) Span of control refers to the type and number of different tasks for which a manager is
responsible.
Answer: FALSE
Skill: Knowledge
Objective: 7.3
32) When many employees perform the same simple task, a wide span of control is feasible.
Answer: TRUE
Objective: 7.3
33) Flat organizational structures are usually associated with centralized decision making.
Answer: FALSE
Objective: 7.3
34) The span of control concept has become obsolete because of the development of high-tech
methods of supervising subordinates.
Answer: FALSE
Objective: 7.3
35) Staff departments aid line departments in making decisions but do not have the authority to
make final decisions.
Answer: TRUE
Objective: 7.3
36) Managers of staff departments do not have authority over the people that work in their
department.
Answer: FALSE
Objective: 7.3
55
37) Delegation is practised by line managers, but not by staff managers.
Answer: FALSE
Objective: 7.3
38) Team authority is generally given to top management teams, but not to operating teams.
Answer: FALSE
Objective: 7.4
39) In recent years, a consensus has emerged among managers that the divisional structure is
more effective than the functional structure.
Answer: FALSE
Objective: 7.4
40) In some organizations, the matrix structure is temporary, and the team is broken up, while in
other firms the structure is permanent.
Answer: TRUE
Objective: 7.4
41) The functional organizational structure is the approach to organizational structure used by
most small to medium-sized firms.
Answer: TRUE
Objective: 7.4
42) All things considered, the divisional structure is probably the best one.
Answer: FALSE
Objective: 7.4
43) A divisional structure relies on functional departmentalization.

Answer: FALSE
Objective: 7.4
56
44) In the divisional structure, departments are quite autonomous and are free to run as managers
see fit.
Answer: TRUE
Objective: 7.4
45) The project organization is not used much by Canadian firms because their megaprojects are
too large for the structure to work.
Answer: FALSE
Objective: 7.4
46) Boundaryless and virtual organizations both function without traditional boundaries.
Answer: TRUE
Skill: Knowledge
Objective: 7.4
47) Global Research Consortium offers research and consulting services to firms doing business
in Asia and is an example of a learning organization.
Answer: FALSE
Objective: 7.4
48) A virtual organization typically has only a small number of employees.

Answer: TRUE
Skill: Knowledge
Objective: 7.4
49) Generally speaking, a team organization is more effective than a virtual organization.
Answer: FALSE
Objective: 7.4
50) The team organization has little or no underlying functional hierarchy.

Answer: TRUE
Objective: 7.4
57
51) A properly structured formal organization eliminates the need for the informal structure.
Answer: FALSE
Objective: 7.5
52) The informal organization is not as powerful as the formal structure.

Answer: FALSE
Objective: 7.5
53) Studies of the grapevine network within organizations have shown that the rumours and
gossip on the grapevine are almost always accurate, and that a prudent manager is wise to act on
that information.
Answer: FALSE
Skill: Knowledge
Objective: 7.5
54) Because the grapevine carries so much inaccurate information, managers should ignore it.
Answer: FALSE
Objective: 7.5
55) Attempts to eliminate the grapevine are fruitless.

Answer: TRUE
Skill: Knowledge
Objective: 7.5
56) The reporting relationships within the company are known as the chain of command.
Answer: TRUE
Skill: Knowledge
Objective: 7.1
ESL: Alternate/ESL
57) A physical depiction of the company's structure showing employee titles and their
relationship to one another is called the organization map.
Answer: FALSE
Skill: Knowledge
Objective: 7.1
ESL: Alternate/ESL
58
58) Job specialization is the process of identifying the specific jobs that need to be done and
designating the people who will perform them.
Answer: TRUE
Skill: Knowledge
Objective: 7.2
ESL: Alternate/ESL
59) Product departmentalization involves setting up departments or divisions that focus on

meeting the needs of specific customers.
Answer: FALSE
Skill: Knowledge
Objective: 7.2
ESL: Alternate/ESL
60) Accountability is the obligation of subordinates to accomplish tasks and justify outcomes to
managers.
Answer: TRUE
Skill: Knowledge
Objective: 7.3
ESL: Alternate/ESL
61) Responsibility refers to how many people are supervised by an individual manager.
Answer: FALSE
Skill: Knowledge
Objective: 7.3
ESL: Alternate/ESL
62) Divisional structure is where various units are included in a group based on functions that
need to be performed for the organization to reach its goals.
Answer: FALSE
Skill: Knowledge
Objective: 7.4
ESL: Alternate/ESL
63) An organizational structure created by superimposing one structure onto another.

(Employees report to two separate supervisors) is known as a matrix structure.
Answer: TRUE
Skill: Knowledge
Objective: 7.4
ESL: Alternate/ESL
59
64) An informal organization is a network of personal interactions and relationships among
employees unrelated to the firm's formal authority structure.
Answer: TRUE
Skill: Knowledge
Objective: 7.5
ESL: Alternate/ESL
65) The grapevine is an informal communications network that carries gossip and other
information throughout an organization.
Answer: TRUE
Skill: Knowledge
Objective: 7.5
ESL: Alternate/ESL
7.4 Short Answer Questions
1) What is an organization chart?

Answer: An organization chart is a diagram depicting a company's structure, showing
employees where they fit into its operations.
Diff: 2 Type: SA Page Ref: 137
Skill: Knowledge
Objective: 7.1
2) What is the purpose of developing an organization chart? How are these charts used?
Answer:
- To illustrate to employees how their job fits into the organization
- To show the chain of command (authority) and flow of formal communication
Objective: 7.1
3) Why do most businesses use organization charts?

Answer: Organization charts clarify structure and show employees where they fit into a firm's
operations. The solid lines define the chain of command or reporting relationship within the
company.
Objective: 7.1
4) What elements work together to determine an organization's structure?

Answer: The chief factors working together to determine an organization's structure are its
purpose, mission, and strategy.
Objective: 7.1
60
5) Explain the meaning of the term organizational structure.
Answer: A tool which shows the specification of the jobs to be done within a business and how
those jobs relate to one another
Skill: Knowledge
Objective: 7.1
6) Identify the two building blocks of organizational structure.

Answer: The two building blocks of organizational structure are specialization (determining
who will do what) and departmentalization (determining how people performing certain tasks
can be grouped together).
Skill: Knowledge
Objective: 7.2
7) List five bases of departmentalization.

Answer: Customer, product, process, geographic, and functional
Skill: Knowledge
Objective: 7.2
8) What is the difference between specialization and departmentalization?

Answer: Specialization refers to breaking down one overall job into several smaller jobs, while
departmentalization refers to the process of grouping jobs together into logical units.
Diff: 2 Type: SA Page Ref: 137-139
Objective: 7.2
9) Creative Innovations has vice-presidents for copiers, printers, and imaging machines. How is
the company departmentalized?
Answer: Creative Innovations is departmentalized by product.
Objective: 7.2
10) Bright Products has vice-presidents for Europe, North America, and Asia. How is Bright
Products departmentalized?
Answer: Bright Products is departmentalized by geography.
Objective: 7.2
61
11) What is one of the advantages of departmentalization by customer?
Answer: Employees from all job functions of the department become experts at serving the
needs of that customer group. It puts the customer first.
Skill: Knowledge
Objective: 7.2
12) What is responsibility?

Answer: Responsibility is the duty to perform an assigned task.
Objective: 7.3
13) What is authority?

Answer: Authority is the power to make the decisions necessary to complete a task.
Objective: 7.3
14) What is delegation?

Answer: Delegation is the assignment of a task, responsibility, or authority by a manager to a
subordinate.
Objective: 7.3
15) What is accountability?

Answer: Accountability is the liability of subordinates for accomplishing tasks assigned by
managers.
Objective: 7.3
16) What is a centralized organization?

Answer: In a centralized organization, upper-level managers hold most decision-making
authority.
Objective: 7.3
17) What is a decentralized organization?

Answer: In a decentralized organization, much of the decision-making authority is delegated to
lower levels of management.
Objective: 7.3
62
18) What is the span of control?
Answer: The span of control is the number of people supervised by one manager.
Objective: 7.3
19) List three factors that may affect a manager's span of control.
Answer: Factors that may affect a manager's span of control include employees' abilities, the
similarity and simplicity of tasks, and the extent to which tasks are interrelated. Other factors
may include the supervisor's management skills and the synergy between the assigned tasks.
Objective: 7.3
20) What is the relationship between the amount of centralization/decentralization and the
"shape" of the organization?
Answer: Decentralized firms tend to have a flat organizational shape with only a few layers of
management, while centralized organizations usually have a tall shape and multiple layers of
management.
Objective: 7.3
21) List the three forms of authority.

Answer: Line authority, staff authority, and committee and team authority
Skill: Knowledge
Objective: 7.3
22) What type of authority flows up and down the chain of command?
Answer: Line authority
Objective: 7.3
23) What type of authority is held by specialists in areas such as law, accounting, and human
resource management?
Answer: Staff authority
Objective: 7.3
63
24) What is a divisional structure?
Answer: This type of structure divides the organization into several divisions, each of which
operates as a semi-autonomous unit and profit centre.
Objective: 7.4
25) List the four basic forms of organizational structure.

Answer: Functional, divisional, project, and international
Diff: 2 Type: SA Page Ref: 144-147
Skill: Knowledge
Objective: 7.4
26) What is a project organization?

Answer: In this type of structure, teams of specialists are formed from different functional areas
of the organization to work on a specific project.
Objective: 7.4
27) Why do some companies adopt a truly global structure?

Answer: Some companies adopt a truly global structure in which they acquire resources
(including capital), produce goods and services, engage in research and development, and sell
products in whatever local market is appropriate, without consideration of national boundaries.
This allows the company to function as one integrated global organization.
Objective: 7.4
28) What is a team organization?

Answer: A team organization relies almost exclusively on project-type teams, with little or no
underlying functional hierarchy.
Objective: 7.4
29) What is a boundaryless organization?

Answer: One in which traditional boundaries and structures are minimized or eliminated
altogether.
Objective: 7.4
64
30) Describe the structure typically found within a virtual organization. How is the structure
typically found within a virtual organization different from the structure of a large corporation?
Answer: A virtual organization has little or no formal structure; typically, it has only a handful
of employees and a modest administrative facility. This is in marked contrast to a large
corporation, which has a very obvious (and large) formal structure and many employees.
Objective: 7.4
31) What is a learning organization?

Answer: A learning organization works to facilitate the lifelong learning and personal
development of all of its employees while continually transforming itself to respond to changing
demands and needs.
Objective: 7.4
32) What is the informal organization?

Answer: The informal organization is the network of everyday social interactions among
company employees that is unrelated to the firm's formal authority structure.
Objective: 7.5
33) Describe a formal organization that does not contain an informal organization.
Answer: There are no such organizations. All formal organizations have an informal
organization embedded within them.
Objective: 7.5
34) Is the informal organization positive or negative?

Answer: The informal organization can be both positive and negative. It can help employees feel
that they belong, it allows them to "let off steam" in a safe environment, and it provides
information. On the negative side, it can reinforce organizational politics and provide distorted
information.
Objective: 7.5
35) What is the grapevine?

Answer: The grapevine is the informal communication network that runs through an
organization.
Objective: 7.5
65
7.5 Essay Questions
1) Describe how organizations create and communicate their organizational structures.

Answer: Each organization must develop an appropriate organizational structure: the
specification of the jobs to be done and the ways in which those jobs relate to one another. Most
organizations change structures almost continuously. Firms prepare organization charts to clarify
structure and to show employees where they fit into a firm's operations. Each box represents a
job, and solid lines define the chain of command, or reporting relationships. The charts of large
firms are complex and include individuals at many levels. Because size prevents them from
charting every manager, they may create single organization charts for overall corporate
structure and separated charts for divisions.
Diff: 2 Type: ES Page Ref: 137
Objective: 7.1
2) What are the major factors which determine how a firm should be best organized?
Answer: The firm's purpose, mission statement, strategies, size of the firm, technology changes,
competition, government regulations, any changes to its internal or external environments.
Objective: 7.1
3) What elements work together to determine an organization's structure? What types of

circumstances affect this structure?
Answer:
- Elements working together include an organization's purpose, mission, and strategy
- Size, technology, and changes in the environmental circumstance affect an organization's
structure
Objective: 7.1
4) Discuss the relationship between chain of command and an organization chart, including what
the boxes, dotted lines, and solid lines represent.
Answer: It is a diagram showing reporting relationships; solid lines = direct reports; dotted lines
= staff authority; one box = one job; helps employees know where they fit in.
Objective: 7.1
66
5) What are the advantages and disadvantages of specialization?
Answer: Advantages: Specialized jobs are learned more easily and can be performed more
efficiently than non-specialized jobs. When jobs are specialized, it is also easier to replace people
who leave the organization.
Disadvantages: When jobs are too specialized, employees may become bored and careless,
derive less satisfaction from their jobs, and lose sight of how their contribution fits into the
overall organization.
Objective: 7.2
6) What is the relationship between specialization and departmentalization?

Answer: The process of identifying specific jobs and designating people to perform them leads
to job specialization. After they are specialized, jobs are grouped into logical units using the
process of departmentalization. Departmentalization follows one of five forms: (1) product
departmentalization, (2) process departmentalization, (3) functional departmentalization,
(4) customer departmentalization, or (5) geographic departmentalization. Larger companies use
different types of departmentalization at various levels.
Diff: 2 Type: ES Page Ref: 137-139
Objective: 7.2
7) Describe the five most common methods of departmentalization within an organization.

Identify the advantages of each method.
Answer:
Customer (departmentalization based on the types of customers likely to buy a given product;
this makes shopping easier for customers)
Product (departmentalization based on the products being created; this focuses management
attention on products that are being sold to consumers)
Process (departmentalization based on the production process used to create a good or service;
this creates efficiency in the production of products)
Geographic (departmentalization based on the area of the country or world supplied; this helps
companies develop products that are suited for different countries or regions)
Functional (departmentalization based on the key functions or activities that are necessary for
organizational success; this facilitates the development of expertise in areas like marketing,
production, and finance)
Objective: 7.2
67
8) Why is it difficult for managers to decide whether to use geographical or product
departmentalization?
Answer: It may be difficult to choose because each basis of departmentalization offers different
advantages and disadvantages. For example, geographic departmentalization ensures quick,
responsive reaction to the needs of the company's customers in specific geographic areas, but it
may also lead to duplicate production and other facilities, and compartmentalization of
knowledge in those same geographic areas. Many years ago, when relatively limited
communications made it difficult to take the pulse of consumer needs or monitor operations
abroad, it made sense to let local managers in foreign countries run their regional or country
businesses as more or less autonomous companies. However, in today's global economy,
competition is so intense that firms can't afford to miss an opportunity to quickly transfer product
improvements from one region to another. So, some firms are switching from geographic to
product departmentalization.
Objective: 7.2
9) Discuss the three-step process used to establish the decision-making hierarchy.

Answer:
- Assigning tasks: determining who can make decisions and specifying how they should be made
- Performing tasks: implementing decisions that have been made
- Distributing authority: determining whether the organization is to be centralized or
decentralized
Objective: 7.3
10) Discuss the difference between delegation and accountability.

Answer: Delegation is the process through which managers allocate work to subordinates.
Accountability, one of the steps in the delegation process, is the obligation employees have to
their managers for the successful completion of the assigned task. Delegation is the overall
process, whereas accountability is a step in the process.
Objective: 7.3
68
11) Describe centralization/decentralization, delegation, and authority as the key ingredients in
establishing the decision-making hierarchy.
Answer: After jobs have been specialized and departmentalized, firms establish decision-making
hierarchies. One major issue addressed through the creation of the decision-making hierarchy
involves whether the firm will be relatively centralized or relatively decentralized. Centralized
authority systems typically require multiple layers of management and thus tall organizational
structures. Decentralized firms tend to have relatively fewer layers of management, resulting in a
flat organizational structure. Delegation is the process through which a manager allocates work
to subordinates. In general, the delegation process involves three steps: (1) assigning
responsibility; (2) granting authority; and (3) creating accountability. As individuals are
delegated responsibility and authority in a firm, a complex web of interactions develops. These
interactions may take one of three forms of authority: line, staff, or committee and teams.
Objective: 7.3
12) Why should a manager maintain equilibrium between authority and responsibility?
Answer:
- With authority comes responsibility
- You cannot hold an employee responsible for a task without giving her/him the authority to use
the firm's resources to carry out the tasks
Objective: 7.3
13) Why are centralization and decentralization, delegation, and authority the key ingredients in
establishing the decision-making hierarchy?
Answer: After jobs have been specialized and departmentalized, firms establish decision-making
hierarchies. One major issue addressed through the creation of the decision-making hierarchy
involves whether the firm will be relatively centralized or relatively decentralized. Centralized
authority systems typically require multiple layers of management and thus tall organizational
structures. Decentralized firms tend to have relatively fewer layers of management, resulting in a
flat organizational structure. Delegation is the process through which a manager allocates work
to subordinates. As individuals are delegated responsibility and authority in a firm, a complex
web of interactions develops. These interactions may take one of three forms of authority: line,
staff, or committee and teams.
Objective: 7.3
69
14) What is delegation? Why do some managers have trouble delegating? What problem arises
when managers fail to delegate?
Answer: Delegation is the process by which managers allocate work to employees. Some
managers have trouble delegating because (a) they assume that subordinates can never do
anything as well as the manager can; (b) they fear that their subordinates will "show them up" by
doing a better job; (c) they want to control everything; and (d) they simply don't have delegation
skills. Managers who fail to delegate don't have time to do long-range planning, and they may be
uninformed about important industry trends and competitive products because they are too
involved in day-to-day operations.
Objective: 7.3
15) Describe what responsibility and authority are, and how they are related.
Answer: Responsibility is the duty to perform a task, while authority is the power to make
decisions related to that responsibility. Each responsibility should have a commensurate degree
of authority.
Objective: 7.3
16) Describe what delegation and accountability are and how they are related.
Answer: Delegation occurs when a manager assigns a task to a subordinate; accountability is the
subordinate's duty to perform the assigned task.
Objective: 7.3
17) What is centralization and decentralization, and how are they related to span of control and
delegation?
Answer: With centralization, the decision-making is concentrated in top management; with
decentralization, the opposite is true. Span of control is the number of people reporting to a
manager and it is wider when a firm is decentralized; likewise, delegation is more likely in a
decentralized structure.
Objective: 7.3
70
18) Describe the factors that affect a manager's span of control.
Answer: There are a variety of factors that affect a manager's span of control, including
employees' abilities (the greater their abilities, the wider the span can be); the supervisor's
managerial skills (the more skilled the manager, the wider the span can be); the nature of the
tasks being performed (if tasks are simple and uniform, the span can be wider); and the extent to
which tasks are interrelated (the more interrelated tasks are, the wider the span can be). When
many employees perform the same simple task or a group of interrelated assembly-line tasks, a
wide span of control is possible. Because all the jobs are routine, one supervisor may control an
entire assembly line of 40 or more workers. Since tasks are interrelated (i.e., if one workstation
stops, they all stop), having one supervisor ensures that all stations receive equal attention. In
contrast, when jobs are not routine, or when they are unrelated, a narrower span of control is
preferable.
Objective: 7.3
19) Compare and contrast the three forms of authority: line, staff, and committee and team
authority.
Answer:
- Line authority is based on chain of command and operates vertically; it is a telling function
- Staff authority is based on expertise and flows horizontally; it is an advising function
- Committee authority is based on granting power for a specified period to a committee or team
that works on a specialized task
Objective: 7.3
20) Describe a line-and-staff organization. What is the difference between line authority and staff
authority, and how are they interrelated?
Answer: A line-and-staff organization is one which contains both line and staff managers. Line
managers have line authority and are directly responsible for the key organizational activities
that are needed to get products and services to customers. Staff managers use their expert
knowledge to assist line managers in making decisions, but staff managers do not have the
authority to make the final decision. But remember this: the goals of the organization influence
the distinction between line and staff authority. At Aluminum Company of Canada, for example,
the director of personnel has staff authority because the personnel department supports the
primary function of the company (the production and marketing of aluminum). But at Office
Overload, the director of personnel is a line manager because the primary goal of that firm is to
provide personnel to other firms.
Objective: 7.3
71
21) How do the job duties of line employees and staff employees differ?
Answer: Line employees are directly involved in the production and/or sales of goods or
services produced; staff employees generally provide services to management but are not directly
involved in goods and services production.
Objective: 7.3
22) Explain the differences among functional, divisional, matrix, and international organizational
structures.
Answer: Most firms rely on one of four basic forms of organizational structure: (1) functional,
(2) divisional, (3) matrix, or (4) international. In the functional structure, the various units in the
organization are formed based on the key functions that must be carried out to reach
organizational goals. In contrast, a divisional structure divides the organization into several
divisions, each of which operates as a semi-autonomous unit and profit centre. A matrix structure
is organized along two dimensions, instead of just one, by combining, for example, a functional
and a divisional structure. International organizational structures are developed in response to the
need to manufacture, purchase, and sell in global markets. As global competition becomes more
complex, companies may experiment with ways to respond. Some adopt truly global structures,
acquiring resources, and producing and selling products in local markets without consideration
of national boundaries. Organizations also continue to seek new forms of organization that
permit them to compete effectively.
Objective: 7.4
23) Explain what a functional structure is. What are its advantages and disadvantages?
Answer: In the functional structure, the various units in the organization are formed based on the
key functions that must be carried out to reach organizational goals. These key functions are
typically marketing, production, and finance etc. See Table 7.2 in the text for a list of the
advantages and disadvantages of this type of structure.
Objective: 7.3
72
24) Explain what a divisional structure is. What are its advantages and disadvantages?
Answer: The divisional structure divides the organization into several divisions, each of which
operates as a semi-autonomous unit and profit centre. Divisions in organizations can be based on
products, customers, or geography. Divisional performance can be assessed because each
division operates almost as a separate company. Companies organized by division can buy, sell,
create, and disband divisions without disrupting the rest of their operations. Different divisions
can sponsor separate advertising campaigns and foster different corporate identities. They can
also share certain corporate-level resources (such as market research data). But sometimes
unhealthy competition develops between divisions, or the efforts of one division may be
duplicated by those of another, and this increases costs. See Table 7.3 for a list of the advantages
and disadvantages of this type of structure.
Objective: 7.4
25) Samantha Grant is the CEO of Ace Products, a manufacturer of copiers and printers. Its
customers fall into four groups: hospitals, small businesses, airlines, and provincial/local
governments. The organization chart shows vice-presidents of manufacturing, finance, and
marketing. All report to Samantha. Which basic structure is Ace Products using?
Answer: Ace Products is using the functional structure.
Objective: 7.4
26) Samantha Grant is the CEO of Ace Products, a manufacturer of copiers and printers. Its
marketing, but a management consultant recommends that Ace Products use a divisional
structure. At the top management level, how might the organization chart differ from what it
looks like if the consultant's recommendation is implemented?
Answer: A divisional structure would likely have vice-presidents of hospitals, airlines, small
businesses, and provincial/local governments. All of these vice-presidents would report to the
CEO.
Objective: 7.4
73
27) Samantha Grant is the CEO of Ace Products, a manufacturer of copiers and printers Its
marketing, but a management consultant recommends that Ace Products use a divisional
structure. How might a divisional structure benefit Ace Products?
Answer: Divisional structures are popular among larger organizations and enjoy several
benefits. Each division usually has its own identity and operates as a relatively autonomous
business under the larger corporate umbrella. Divisionalized companies are free to buy, sell,
create, and disband divisions without disrupting the rest of their operations. Divisions can
maintain healthy competition among themselves by sponsoring separate advertising campaigns
and fostering different corporate identities. They can also share certain corporate-level resources.
Objective: 7.4
28) Why is the divisional organizational structure used by so many large corporations?
Answer: Divisions operate as largely independent businesses. Many corporations have several
businesses which are involved in diverse activities, and they are well suited to be run as virtually
independent companies.
Objective: 7.4
29) Why should a firm consider the matrix organizational structure for developing new products?
Answer: In a matrix organization, project managers and line managers share authority. This type
of structure is flexible, and is focused on customers, not on functions. Once a project is complete,
the matrix can easily be disbanded.
Objective: 7.4
30) What organizational structure issues must Canadian firms address when they decide to "go
global"?
Answer: They must address three organizational structure issues: (1) is the business going to be
centralized in the home base in Canada, or is going to allow decentralized decision making in its
various foreign offices; (2) is the business going to communicate a single global message or is it
going to tailor its message to each of the countries it operates in; and (3) how is collaboration
going to be achieved between the home office in Canada and the company's offices in foreign
countries.
Objective: 7.4
74
31) As the world grows increasingly complex and fast paced, organizations continue to seek new
forms of organization that permit them to compete effectively. Identify and describe some of
these new forms.
Answer: In boundaryless organizations, traditional boundaries and structures are minimized or
eliminated altogether. People, ideas, and information flow freely between businesses and
business groups. When a business partners with its suppliers in more efficient ways, external
boundaries disappear. For example, some of Walmart's key suppliers are tied directly into the
retailer's information system. In team organizations, reliance is almost exclusively on project-
type teams, with little or no underlying functional hierarchy. People "float" from project to
project as dictated by their skills and the demands of those projects. In virtual organizations,
there is very little structure. Typically, a virtual organization has only a handful of permanent
employees, a very small staff, and a modest administrative facility. As the needs of the
organization change, its managers bring in temporary workers, lease facilities, and outsource
basic support services to meet the demands of each unique situation. In learning organizations,
the focus is on facilitating the lifelong learning and personal development of all its employees,
while continually transforming itself to respond to changing demands and needs. The most
frequent goals are improved quality, continuous improvement, and performance measurement.
The idea is that the most consistent and logical strategy for achieving continuous improvement is
to constantly upgrade employee talent, skill, and knowledge.

Objective: 7.4
32) What is the informal organization? What is the relationship between the formal and informal
organization?
Answer: The informal organization consists of the everyday social interactions among
employees that go beyond formal jobs and job interrelationships. It can affect the company's
formal structure by changing the way information is sourced and distributed. The formal
organization may contain individuals who have very little formal authority but who have
immense informal influence. These individuals can facilitate or inhibit the effectiveness of the
organization. In some cases, the informal organization is just as powerful, if not more powerful,
than the formal structure.
Objective: 7.5
75
33) How should a manager react when he or she discovers the existence of an informal
organization and grapevine within the context of the formal organization?
Answer: The manager should first accept the fact that the informal organization and its
grapevine are extremely important to employees. Since attempts to eliminate the informal
organization and the grapevine are fruitless, the manager should not react negatively and try to
stamp out these features of the organization. Rather, the manager should maintain open channels
of communication and respond vigorously to inaccurate information because this will minimize
the damage the grapevine can cause. In fact, the grapevine can be an asset. By getting to know
the key people who are part of the grapevine, the manager can partially control the information
that is disseminated and can use the grapevine to determine employee reactions to new ideas
(e.g., a change in human resource policies or benefit packages). The manager should try to use
the informal organization to his/her advantage rather than trying to suppress it.
Objective: 7.5
76

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Business Essentials, Canadian Edition, 9e (Ebert)

Chapter 7 Organizing the Business Enterprise

7.1 Multiple Choice Questions

1) Organizational structure refers to

2) Which of the following is correct with respect to organizational structure?

6) What is the purpose of organization charts?

8) What is the meaning of the individual boxes on an organization chart?

17) Grouping jobs into logical units is called

20) Which of the following is correct with regard to job specialization?

21) Departmentalization refers to

24) The men's clothing department at Hudson's Bay is an example of a

25) Businesses use profit centres because

41) Which of the following is an advantage of customer departmentalization?

47) Which of the following best describes responsibility?

48) Which of the following best describes authority?

49) Which of the following best describes delegation?

51) Which of the following best describes accountability?

52) Which of the following best describes responsibility?

53) Which of the following best describes authority?

56) Which of the following is an advantage of delegation?

63) In order to ensure standardization at McDonald's, most lower-level decisions must be

64) What is the main organizational characteristic of decentralized firms?

66) Which statement about organizational structure is true?

67) What does the term span of control refer to?

68) Which of the following is likely to be evident at a small, owner-operated firm?

72) An organization that begins to eliminate management levels in a "downsizing" restructuring

90) What is an advantage of the functional organization structure?

99) Which of the following is an advantage of a functional structure?

100) Which of the following is correct with regard to divisional structures?

116) Which of the following is a disadvantage of informal communications?

120) What are the reporting relationships within a company called?

134) What is the number of people managed by one manager called?

141) What type of organizational structure is designed to help a company succeed in

1) At Appleson Publishing, products are produced by a team representing different functional

7.3 True/False Questions

5) Most organizations change their structures on a continuing basis.

11) In small organizations, jobs tend to be unspecialized.

18) Customer departmentalization generally is more effective than geographic

25) Many managers have trouble delegating tasks to others.

26) Organizations use decentralization to maintain standardization.

27) At FedEx, the commitment to decentralization promotes innovation.

29) There are advantages and disadvantages associated with decentralization.

43) A divisional structure relies on functional departmentalization.

48) A virtual organization typically has only a small number of employees.

50) The team organization has little or no underlying functional hierarchy.

52) The informal organization is not as powerful as the formal structure.

55) Attempts to eliminate the grapevine are fruitless.

59) Product departmentalization involves setting up departments or divisions that focus on

63) An organizational structure created by superimposing one structure onto another.

7.4 Short Answer Questions

1) What is an organization chart?

3) Why do most businesses use organization charts?

4) What elements work together to determine an organization's structure?

6) Identify the two building blocks of organizational structure.

7) List five bases of departmentalization.

8) What is the difference between specialization and departmentalization?

12) What is responsibility?

13) What is authority?

14) What is delegation?