Kranworth Chair Corporation

Case study-Kranworth Chair Corporation

Q1.To some extent, I think they don't go far enough. More departments should be decentralized according to the early experience.

The "Supply Chain and Quality Control" should be decentralized. Because I think according to different market demand, they should supply to the two divisions different product, the "supply chain and the quality control" is quite different for the two divisions. Joe complains about the late deliveries and missed sales, I think it's partly because the supply chain is not decentralized enough. As a result, the two divisions cannot decide which vendor they want to corporate with and they don't have the control of the oversea venders. But if they "decentralize the supply chain and quality control", the cost will be increased. Actually, it's the main problem of decentralization in my opinion. The company should balance the cost and the outcome of the decentralization and decide which part should be decentralized.

There is complain about the D&R. D&R allocates the cost equally to the two divisions, but both the two divisions are not satisfied. "Custom division" thinks the R&D just copy the competitors' idea, "Retail division" believes they know the demand better than the division. So there are conflicts on both allocation of the cost and to satisfy the different demands. If the R&D be decentralized, the conflicts may be avoided.

Above all, decentralization can avoid the problems such as cannot allocate the cost accurately and cannot satisfy specific demand of different groups of customers. But it will also increase the cost of the company, and what's more, if they decentralized too much, the two divisions will operate like two separate companies, which may lead to that each division cares only about their own interest. They want to get enough resources from the company to make profit for their own. But the resource of the company as a whole ( like money, assets) is limited. So there will be conflicts between the divisions and not good for the control as a whole.

Q2.First, I suggest them to change the bonus for the corporate managers from solely depending on corporate performance to depending partly on corporate and partly on division performance. Because if KCC retains its new divisionalized organization structure, there will be balance to allocate limited resources to two divisions. The centralized departments should consider both the profit as a whole as well as the divisioins' profit. Take the R&D for example, if we make the bonus partly depend on the two divisions, the R&D will consider their demand more and try to satisfy them. If we make it solely on the corporate performance, they may not care about the specific demand of the divisions, which leads to the complain.

Second,