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ACCA Applied Knowledge · Business and Technology · Business organisational structure

Kobe Ltd decentralises authority to its divisions, but each divisional manager pursues goals that maximise divisional profit even where this harms the group as a whole. This problem is best described as:

This is a loss of goal congruence. When divisions have autonomy, managers may maximise divisional profit at the expense of group objectives, causing sub-optimal decisions. Span of control relates to the number of subordinates, and unity of command to a single reporting line, so neither describes the problem.

  1. ASpan of control failure
  2. BLoss of goal congruenceCorrect
  3. CExcessive standardisation
  4. DUnity of command

Explanation

A key disadvantage of decentralisation is that autonomous managers may act in their own division's interest rather than the group's, so goal congruence is lost (dysfunctional or sub-optimal decisions). Span of control concerns the number of subordinates, standardisation is a feature of centralisation, and unity of command means one boss per employee.

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