Langsam,Inc

question 100

Essay

Langsam,Inc.has used a decentralized form of organizational structure for the past five years.The controller,Ms.Terrance,has noticed that some of the divisions are still using fixed assets that are fully depreciated and that there has been little acquisition activity in these divisions.Coupled with this are very high ROIs,especially when compared to the other divisions that seem to have a regular program of disposition and replacement of fixed assets.She takes her concerns and observations to the Financial Vice President who says he will review her findings and look into the problem.Required:
1)What are the potential negative effects of decentralization?
2)Specifically discuss the issues involved in suboptimization.

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Definitions:

Performance Norm

A standard or expectation for behavior and performance that is established by a group.

Cohesiveness

The degree to which members of a group or team feel attracted to the group and motivated to remain a part of it.

Productivity

The efficiency at which individuals or systems produce goods or complete tasks.

Free Riding

A situation in which individual members of a group benefit from the efforts of others without contributing themselves.