Two Specific Organizational Forms of Business and the Possible Implica Assignment

Two Specific Organizational Forms of Business and the Possible Implications of the Principal-Agent Problem - Assignment ExampleTwo special(prenominal) organizational forms are the harvesting-based organizational form and the usable form. The operating(a) form is structured according to different functional departments in the organization, such as the finance, sales, marketing, product development, accounting, and human resources. On the other hand, a product based organizational form is structured according to the organizations product lines electronics, appliances, consumer products, and others. A principal-agent consanguinity is defined as a relationship which occurs whenever one person acts in the interests of another (Garger, 2010, p. 1). As emphasized by McGuigan, Moyer and Harris (2014), the principal-agent model ensues when owner-principals hire manager-agents to stand in and conduct their business affairs (p. 559). Accordingly, in a functional organization, the firm is d ivided into functional divisions, and a division manager has responsibility for a private functions activities on behalf of all products. In a product-based organization, the firm is organized into product divisions, and a division manager has responsibility for all functional activities in behalf of a single product (Besanko, Regibeau, & Rockett, 2005, p. 461).The possible implications of a principal agent relationship in a functional organization versus product-based organizations are summed as follows (1) measuring profitability in a product-based organization is easier due to the ease of offering incentives according to products (2) when functions are deemed much significant in a functional organization, the latter is allegedly favored due to the ability to offer and apply incentive sensitivity principle (3) in the presence of cross-product externalities within functional departments, findings revealed choice for favoring functional organizations due tothe ability of function managers to imbibe externalities in their decision-making processes and (4) diseconomies of span generally favor the functional organization when one product is significantly more important to firm profitability than the other and favors the product organization when one function is significantly more important than the other.