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Unformatted text preview: 22-18(15 min.) Decentralization, goal congruence, responsibility centers.1.The environmental-management group appears to be decentralized because its managers have considerable freedom to make decisions. They can choose which projects to work on and which projects to reject. Top management will adjust the size of the environmental-management group to match the demand for the group’s services by operating divisions. 2.The environmental-management group is a cost center. The group is required to charge the operating divisions for environmental services at cost and not at market prices that would help earn the group a profit.3.The benefits of structuring the environmental-management group in this way are:a.The operating managers have incentives to carefully weigh and conduct cost-benefit analyses before requesting the environmental group’s services.b.The operating managers have an incentive to follow the work and the progress made by the environmental team.c.The environmental group has incentives to fulfill the contract, to do a good job in terms of cost, time, and quality, and to satisfy the operating division to continue to get business.The problems in structuring the environmental-management group in this way are:a.The contract requires extensive internal negotiations in terms of cost, time, and technical specifications.b.The environmental group needs to continuously “sell” its services to the operating division, and this could potentially result in loss of morale.c.Experimental projects that have long-term potential may not be undertaken because operating division managers may be reluctant to undertake projects that are costly and uncertain, whose benefits will be realized only well after they have left the division.To the extent that the focus of the environmental-management group is on short-run projects demanded by the operating divisions, the current structure leads to goal congruence and motivation. Goal congruence is achieved because both operating divisions and the environmental-management group are motivated to work toward the...
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- Spring '10
- Contribution Margin, external suppliers, Finished Lumber Division