Essay about Kranworth Chair Corporation

2275 Words Aug 10th, 2014 10 Pages
Some of the issues KCC is facing relate to the division of responsibilities between a functional and a divisional structure, and how best to achieve an effective relationship between these areas. Manager talent is another concern. Managers are coming from a centralized structure, and some are not trained to handle divisional responsibility, although they have been tasked with this responsibility. Consequently, some of the decisions made by the divisional managers are questionable from the perspective of the owners.

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
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This issue largely depends on how their performance is measured and rewarded.

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

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