Always Round Tire has service stores in many parts of the United States. The stores in Tennessee have petitioned for independent local store managers. The managers claim that since Memphis, Nashville, and Knoxville are hundreds of miles apart, each manager is really in a separate market and needs to deal with local marketing, sales, and pricing issues independently. What issues would need to be considered before giving these local managers the authority that they are requesting?
What will be an ideal response?
The firm should consider how well the managers' performance can be measured and monitored. There may be agency costs of decentralization, although with all stores 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 proper access to centralized information such as customer databases, pricing expertise, and so forth, to be able to make the best pricing decisions.
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