Always Round Tire has service stores in many parts of the country. The stores in Tennessee have petitioned for local store manager independence. The managers claim that since Memphis, Nashville, and Knoxville are hundreds of miles apart that each manager is really in a separate market and needs to deal with local marketing, sales, and pricing issues. What issues would need to be considered before giving these local managers the authority that they are requesting?

Question

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The Answer is The company should consider how well the managers' performance can be measured and monitored. There may be agency costs of decentralization, although with the stores all located in Tennessee, these costs may be low. Coordination costs such as coordinating inventory among the stores may also rise under this change. Local managers may not have good access to centralized information such as customer databases, pricing expertise, etc. to be able to make wise pricing decisions.

Always Round Tire Has Service Stores in Many Parts of the Country