Question

1 why would a company decide to split up into two (or more) companies? 2. In your own words, explain the dilemma that managers face when they are trying to decide between product and geographic departmentalization. 3. how does the notion of managerial accountability enter into the "product vs geographic departmentalization" decision ?

Answer 1

ANSWER

1. A company splits up into two or more companies mainly because of strategic reasons. Often a company which has several business lines which are unrelated to each other will split up for the reason that each split up entity will be able to concentrate specifically on its business line. This will ensure that use of resources such as capital and management is optimized and that profit generation capability of each entity is maximized.

2. The dilemma that managers face when they are trying to decide between product and geographic departmentalization is to strike a balance between standardized manufacturing process, elimination of common activities When one form of departmentalization is selected the dilemma for managers is to how to maintain the balance. For example if product departmentalization is opted for then local decision making will be slower and the company may not able to manufacture and sell products that cater to the needs and requirements of a country. This may lead to loss of market share in the long run.

3. Managerial accountability means the accountability of the managers for the decisions and actions taken by them and the consequences of those decisions and actions. Managerial accountability enter into the product vs. geographic departmentalization decision by the fact that managers who will decide whether to go for product departmentalization or geographic departmentalization will be answerable for any negative fallout and consequences of their decision. In other words the managers will have to ensure that their decisions will not negatively impact the strategic outcomes of the company and hurt its interests in the long run. The managers are agents of the stockholders who are principals and hence in case of decisions of product vs. geographic departmentalization the managers will have to ensure that their decisions continue to add more value.