Megaline, Inc., follows the competitive form of the multidivisional structure. It has five divisions. One division has not met the rate-of-return goals for the past year. One division has exceeded the rate-of-return goals. The other three divisions met the rate-of-return goals. The headquarters office is making decisions about where to allocate capital in the next year. Which scenario is the MOST likely?
A) The poorest performing division will get the highest capital allocation so that it can fix its problems and achieve the rate-of-return goal next year.
B) The highest performing division will get the highest capital allocation because it has the best prospects for creating more wealth for the shareholders next year.
C) The average performing divisions which met the rate-of-return goals will receive the highest allocation because their performance exactly matched corporate requirements.
D) All divisions will receive the same capital allocation for the next year because this organizational structure rewards divisional managers based on achievement of strategic goals.

Question

Quizplus · Accepted Answer

In a competitive form of the multidivisional structure, each division is expected to perform competitively to achieve the rate-of-return goals. The division that has exceeded the rate-of-return goal should be given the highest capital allocation because it has proven its ability to create wealth for the shareholders. Allocating capital to the struggling division may not guarantee it will perform better next year, and distributing equal capital to all divisions disregards the difference in their performance. Therefore, option B is the most logical approach.