Ecns 457
Spring 2015
Please answer the following two questions. You should answer each of these questions using no more
than 1 page per question (typed, double spaced, sans-serif font, 10-point type, with 1-inch margins: top,
bottom and sides). These are applications of the concepts we have discussed, so explicitly tie your
answers to them; ad hoc answers are NOT acceptable. Due: Tuesday, March 17 at 10:30 am.
1. Farmland on which annual crops are grown is often rented, but orchards and other perennial crops
are more often grown by the owners of the land. How can this be explained?
2. In California’s fruit farms, farm workers who pick fruit are commonly organized into teams that are
paid according to the number of trees that are cleanly picked (of ripe fruit). The teams themselves
decide how to divide the pay among their members. Explain the reason for this arrangement. (This
question has two aspects to it: First, why are the groups paid by the tree, and two, why do the
groups determine their members’ shares of the pay?)
For discussion next week: Do some background work on your own and be prepared to intelligently
discuss these concepts.
Concept of Core Competencies.
1. What are “Core Competencies”? Is this another key consideration in defining the boundaries of the
organization?
2. For many years, Swiss craftsmen made the finest watches, which were powered by would up
springs. The Swiss lost ground to competitors in Japan and elsewhere as more accurate, less
expensive. What were the core competencies of watchmaking in the era of Swiss dominance and
how were they changed by new technologies? What other products were made by the new
watchmakers? Is there an analogy here that can extend to the recent unveiling by Apple of the
Watch (surprisingly not called the iWatch)? What can you predict for the current “established”
watch companies? (Do a little research on who were are talking about here). Can these concepts be
extended to explain the current positions of one-time leaders in their markets such as Kodak
Corporation and Nokia Corporation?
Start of Compensation Structure, Risk Sharing, and Incentive Contracts:
1. In the late 1960s and early 1970s, when fast food giant McDonalds was establishing themselves
upon the American scene (they hadn’t taken on the world yet), they underwent a period of very
rapid expansion in sales and had to carefully tackle the problem of how to set up a compensation
system for their restaurant managers. The company wanted to encourage the managers to increase
sales, control costs and maintain the company’s standards of quality, service, and cleanliness. It also
wanted local store managers to hire and train people who could become managers of new outlets,
which were being added to the chain at a very rapid pace. What difficulties would you expect this
situation to pose for McDonald’s senior management? What would you expect to occur if a local
outlet manager’s compensation were based primarily on sales growth? On outlet profits? What
kind of compensation plan should McDonald’s have adopted? How would expect the compensation
formula to change as McDonalds moved into its next phase with fewer new outlet being opened in
North America?
2. Qdoba and Chipotle Mexican Grills sell similar fare. Why would Qdoba outlets be franchised while
Chipotle does not franchise, but directly owns all of their stores? (Do a little digging!)