Essay about Kranworth Chair Corporation
Corporate control over supply chain management and R&D has also caused issues with the divisional managers. Corporate controls supply-chain decisions, which takes away the division managers’ ability to control some …show more content…
The division structure may be too complex, with unnecessary coordination issues.
Along the decentralization lines, it’s important to address whether or not KCC’s new division managers’ authority should be expanded to include the supply chain and R&D functions. There are advantages to doing so, such as increased response time and increased manager awareness of the cost of these functions; however, there are many costs as well. Given the relatively small size of the company, both economies of scale (which are lost when these functions are duplicated) and scope (due to sufficient synergies across both divisions for these two functions given that products are related) tilt the balance in favor of keeping these two functions centralized.
It is important to emphasize, however, that decentralization gives rise to a fundamental results control issue — how to make sure employees (especially those who have authority to make important decisions) act in the best interest of the firm. Measuring the performance of division managers and linking results to their compensation addresses this control issue. Therefore, decentralization has to go together with changes in measuring performance and compensating managers.
This leads to a discussion of performance measures. The first issue is to determine what type of responsibility centre the divisions are — cost/revenue, profit, or investment