Kranworth Chair

Case: Kranworth Chair

Situation size up

• Firm has been using a centralized/functional structure

• Moving towards decentralization

• Reporting relationships and authorities would all change

• Decides to focus the decentralization based on product lines

Why centralize?

Benefits Cost

Division managers have more knowledge to their products and know better how to target production and advertising to tailor specific markets Managers could not be working in the best interest of the corporation

Motivates behaviour and encourage entrepreneurial spirits Uncomfortable to make decisions in the beginning; but we can help lower managers at the lower level to make small decisions to begin with and promote them up the chain

Use the knowledge and expertise that local managers possess Less collaboration between divisions and departments

Reduce complexity to encourage lower level managers make lower level decisions so top management would have time to focus on the overall picture Performance measurements are hard to determine to accurately assess the performance of individual division managers; congruence problems; if we don’t have a good control system, it can worsen the congruence problem

More information, more data to base decisions Behaviour modification; people are motivated by specific, relatively difficult goals, and timely feedback regarding their acts

Purposely set managers short term profits but this leads the managers to focus on goals now rather than long term growth and goals

Timely decisions How to allocate OH costs like R&D to divisions

Segmented; easy to start and terminate

What are the strategic/management benefits of organizing into custom & standard divisions?

• Custom division focuses on creativity and standard focuses on production but both need quality

• Standard division

• Focus on cost control since margins are low

• Easily copied and made for less in Asia

• Must sell high volume to survive

• Products are much similar with many other competitors

• Custom division

• Focus on differentiation (new features and designs)

• Margins are higher, volumes are lower

• Must