Agency "m" Case

The present system of organizational architecture at Agency “M” could be analyzed primarily under three components

1. The assignment of decision rights

2. The system of performance assessment/evaluation

3. The method of rewards and punishments

The alignment of these three components would be a major determinant of the success and failure of the firm. The key problem faced by any firm is to ensure that the people with the decision rights have the right information or the people with the right information have the appropriate decision rights and more importantly these decision makers are rightly incentivized to use the information productively.

Once we are through with the initial analysis of the systems under the three components listed above, we would then compile the issues broadly into information problems, control problems and principal-agent problems which would provide us with the platform to build a possible solution upon.

The organizational hierarchy of Agency M can broadly be classified into the following levels:

1. Owners

2. Primary CEO (Also managing other independent businesses of the owners)

3. Secondary CEO (Only for Agency M)

4. Presidents at each of the 4 offices of Agency M

5. Directors/VP at every office

6. Employees and staff

Analysis of the components of organizational architecture at Agency “M”

1. Assignment of decision rights

• The president of each office had all the rights to run his/her office as they saw fit provided the goals are being achieved.

• The CEO did not intervene in operational issues on a regular basis and only did in case of emergency situations with the goals not being met.

• The president was the sole holder of the rights to decide about staffing, client management, compensation and discretionary spending

• The decision rights of the employees at the VP/director level were set by the president of that office and these rights totally depended on the management style of the president.

• The president makes the decisions for everyone on every aspect including their salary, promotion, incentives, bonuses, time-off etc.

2. Method of performance evaluation:

• There were two equally weighted goals for performance evaluation in addition i.e. the company’s net income grows by 30% and the unit’s net income grows by 30%