Answer to Question 1
The term organizational inertia refers to the forces inside an organization that make it resistant to change. Some of the factors that cause inertia are:
1. Risk aversion: As organizations grow, managers often become risk aversethat is, they become unwilling to bear the uncertainty associated with entrepreneurial activities. They prefer to protect the status quo and keep things the way they are, so over time an organization becomes increasingly difficult to change.
2. The desire to maximize rewards: Research suggests that managers' desire for prestige, job security, power, and the strong property rights that bring large rewards often leads them to focus on strategies that increase organizational size, even if this reduces future profitability and organizational effectiveness.
3. Overly bureaucratic culture: In large organizations, property rights (such as salaries and stock options) can become so strong that managers spend all their time protecting their specific property rights instead of working to advance the organization's interests. Managers attempt to establish a tall hierarchy so that subordinates have less authority and their behavior can be closely scrutinized. Such a culture is not beneficial to a large company fighting for survival in an uncertain environment.
Answer to Question 2
FALSE
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