MANAGEMENT CONTROL SYSTEMS, TRANSFER PRICING, AND MULTINATIONAL CONSIDERATIONS

The organization of power within a corporation is a rigid dichotomy between centralization and decentralization. Substitute strategies can exist anywhere along the spectrum whether they are completely centralized, completely decentralized or somewhere in between. Though Cervus’ methods are substitutable, centralized policies have not proven to be nearly as successful in maintaining

He argues that idle capacity is worse since it has no contribution to overheads whereas a lower price above variable costs would have some positive contribution to the fixed costs and therefore improve profitability for the division. He believes a price of $40 is insufficient to cover the total costs and that the systems division does not want to subsidize the overheads of outside buyers.

As our strategy of ‘high price-low volume’ suggests, we wanted to sell our bikes at a higher price than was recommended by the market. In the first rollover however, we decided to increase the price of our bike from the recommended $550 to $579. We were being careful about the chances that other firms would not increase their price of the bike as much as we would, and thus capture more of the market by doing so. We felt that we needed to produce a bit more than the current capacity suggested, from 20,000 to 22,000 bikes. The cost of goods sold would decrease if we produced many bikes this rollover, so the decision to produce more bikes on average only for this rollover was upheld.

One of the themes in Thomas McCraw’s book American Business Since 1920: How It Worked is mastering centralized control through decentralized management. As the business world rapidly expanded competition for market share between the larger companies increased. More task management was necessary in order to delegate within the businesses as they expanded. The market was also changing and as an answer to that some companies implemented a revised version of traditional management; decentralized management (McCraw, 2009).

The purpose of this paper is to define and explain the bureaucratic organization listing the characteristics and identifying the main principles. In addition to define an agile organization listing the characteristics and identifying and listing the nine steps of management by objectives. Also listing the advantages and disadvantages of both the bureaucratic and agile organizations. This information is imperative to the police department. Decisions will be made as to the type of organization is the best choice for our department.

a) As per exhibit -4, there was no cost allocation between Treasury and Metro divisions, hence transfer price will be:

There are numerous favorable circumstances to a decentralized system. It diminishes the force of the administration and improves the force of people. It likewise makes it less demanding for people to take an interest in the administration and help to give it fitting headings. In the event that the administration still settles on a destructive choice, less individuals get hurt in a decentralized

Top leaders should push power downward, across the organization, empowering people at all levels to make decisions (Columbia Business School, 2016). As a

“The next era of growth evolves from the successful application of a decentralized organization structure. It exhibits these primary characteristics: 1. Much greater responsibility is given to the managers of plants and market territories. 2. Management often concentrates on making new acquisitions which can be lined up beside other decentralized units. 3. Communication from the top is infrequent, usually by correspondence, telephone, or brief visits to field locations” (Greiner, 1998).

Caterpillar (CAT) has become “the industry leader in earth-moving machinery” for several reasons. However, a sole reason for the company’s success is the patent for their “farm treads” (Kotler, Keller 395). If CAT failed to trademark these treads, they would have never received the advantages resulting from their contract with the Army in the mid-20th century. This relationship helped CAT build their brand equity, all while gaining market share. Besides the trademark, the company’s restructuring in the 1990’s helped CAT to manage its sales, profits, and losses. According to Chron, decentralizing improves a company’s decision making process because managers have greater authority and control (Joseph). Furthermore, the managers will begin to evaluate each decision thoroughly since the outcome reflects directly back on them. Moreover, decentralization is a primary reason why CAT was able to bounce back from the 1980’s recession. Decentralization constructs separate business units which encourages each organization to assume responsibility for their actions (Joseph). The individualized organizations allow managers to adapt their strategies to the varying market environments. In other words, managers have the authority to react appropriately to different environmental situations, as well as, allows them to respond in a timely fashion. Furthermore, CAT investing in research and development has contributed greatly to the company’s success. The development of “new technologies,

(Daft, 2015, p. 309) On the other hand, some managers opt for decentralized control where delegated by top management to middle and lower-level mangers within the organization, allowing top management to focus more on major decisions, Employees can be empowered by having more autonomy to make their own decisions, giving them a sense of importance and making them feel as if they have more input in the direction of the organization, allows top managers to focus more on strategic planning, and employees become more invested in the success of the organization as they perceive that they have value in the company. This is evidenced by Carr refusing to permit critical input from internal recruiters; his stating that the project, "is a waste of time and money" or that the team should, “just stick to the original plan and get it done". The final insult being, ”You can 't learn more from a computer than you can talking to real people-and as for internal recruiting, it shouldn’t be so hard to talk to people if they’re already working right here in

Other common terms for the idea of organizational decentralization include: team self-management, self-management, shared control, distributed leadership (Lambe, Webb, & Ishida, 2009) and holacracy (Robertson, 2007). While these terms may have small differences they all describe the common theme of distributing power across organizations. Several concepts help to explain why decentralization and the encouragement of teamwork throughout an organization are often superior to traditional management structure.

to define the transfer pricing policy. Although the transfer pricing of Heidelberg is high, it would be interesting to force the two divisions to discuss and find a compromise on price. A potential way of determining both Heidelberg and later ECD’s transfer prices, would be to use the incremental cost per unit. Each division has excess capacity to spare and would not be forgoing potential sales by selling internally at a lower price. Although the company risks alienating external suppliers, as it stands now the product only represents 5% of total revenue for each division involved. Thus it is not likely to anger potential suppliers initially. The market is competitive enough that if in the future the company needs to outsource, there will still be willing suppliers.

This was actually the proper transfer pricing for the company in supplying to other division.

The company should consider whether the transfer pricing method has simplicity and transparency, which provide objective performance measurements for division managers. With regard to simplicity and transparency, it is best for the company to set market-based transfer pricing because this is more objective than cost-based transfer pricing. In particular, when companies use cost-based transfer pricing, it is difficult to evaluate division performance unless the transfer prices exceed full costs.