Ladue, Inc. has used a decentralized form of organizational structure for the past five years. The controller, Ms. Trevino, 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.

Question

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The Answer of Ladue, Inc. has used a decentralized form of organizational structure for the past five years. The controller, Ms. Trevino, 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.