240PART TWO The Business of Masaging 6 Gamble also encoumtered problens after it

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240PART TWO The Business of Masaging 6 Gamble also encoumtered problens after it reglaced with global business units in an attempt to brands like Tide, Pampers, and Crest. The reorganization within the company as thousands el employees caused au jpbs. As mamy as half of all company esecutives took gifted es The CE0 who ordered the change left the company just CONCLUDING CASE 7-2 For example, in 2011. grocery chain Sobeys split into Restructuring Dilemmas ate n Quebec. Th ll include Sabeys, Thrifty Foods, Sobeys Companies semetimes face dilermmes when deciding how to structure Mache Benichcis, and Rachelke-Bery i their activities. Two common dilemmas ave (2) whether to split a single Operatins w 1 company its hno for mara oampanies, and a whther to use Foodlsnd, FresiCa, Needs Frast fue, Sbegy, li Questions for Discussion graphical or product departmentalization within a single compary.stores in western Canada meld a company decide to split up into two er mote) companies? wn words, explain the dilemma that managers face Geographic vs. Product Departmentalization 2: shen they are trying to deciõe between product and gegraphic Splitting a Single Company into Two (or More) Hopadoestalizattionofdeananeraluatontability onterinto the During the past decade, many firms have swithed from is change has been driven ty gp 3. In 2011, Kraft Foods decided to splt into two distinct companies, ane product departmentalization. Th peoduct vs. geographic departmentalization" decision focusing an morkdwide snacks (including brand names like Oreo and global competition and by reduced impediments to Lu cockles, Cadbury chocolate, and Tident guml, and the other focusing communication. Consider these examples on the North American grocery business (inclading brands like Velveeta cheese and Marwell House coffee). The Narth American grocery business Food company Heinz abandoned will de lsunched as a pubicly traded company, but both companies will and is now organized by products. Managers in the U.S. wh w ively slowly compared to the snacks business. The decisin to splt into The Canadian Imperial Bank of Commerce (CIBC) also rearzani Cadbury PLC. The decision to create two companies required Kraft manag- banking side and the more volatile investment banking sida. The was the those in Europe. Asia, and other regions to apply the best ideas retain the Kraft Foods name. One reason for the restructuring realization that sales reverue in the grocery tusiness was growing rela from one region to all the others two companies comes only two years after Kaft's epic battle to take over to break down the walls between the conservative retail/lonneria ers to make sme interesting decisions about which preducts would go company is now orgamized around product lines where. It was decided, for example, that Planters Peanuts would go with Exide Corp.'s structure formerly consisted of several "ccuntry the grocery company and move from its curment home in snack loods. But organizations" that had considerable latitude to make decisicns for Philadelphia Cream Cheese whose sales revenue is about evenly that were best for that country, But it adopted a new product split between North America and the rest of the world-one company structure with global business units to oversee the cempany's may have to license the brand from the ather. Other decisions were made various product lines such as car and industrial batteries as well. Distnbution for products to procery stores will be outsourced to Acasta Sale and Marketing, while Crossmark will distribute products to (Either type of departmentalization-products or geograpy-ca cause problems if taken to an extreme. If a company organges by PepsiCa (which has been falling behind Coca-Cola) has also been products, it can standardize manufacturing, introduce new prodats under pressure from investors to split into two companies, with one around the world faster, and eliminate overlapping activities. But t h focusing on snacks and the other on beverages. But to date the company much emphasis is placed on product and not enough on gesgraph has not done so. a company is likely to find that local decision making is slowed and Tyco Iinternational is another company that split up. It will now focus products are not tailored to meet the needs of a specific coutry's on selling security and fire-suppression systems to businesses. Tyo's customers) When Fard Motor Co. moved to product departmentaluabien two other divisions, which sold ADT residential alarms and industrial the reorganization saved the company $5 billion in its first few years valves and pipes, will be spon off. it is thought that this illallow all three units to be more easily acquired by other companies, Fard responded to this drop in market share by g or for them to pursue other takeovers on their own. testructuring of operatison, but Ford's market share declined during the same Sometimes a company will split into two parts, but both parts best for their local market. In other words, it moved back a bit varisus regions more authority to decide what types of vehicles wet will continue to operate under the umbrella of a single company. the geographical model

Explanation / Answer

1. A company splits up into two or more companies mainly because of strategic reasons. Often a company which has several business lines which are unrelated to each other will split up for the reason that each split up entity will be able to concentrate specifically on its business line. This will ensure that use of resources such as capital and management is optimized and that profit generation capability of each entity is maximized.

2. The dilemma that managers face when they are trying to decide between product and geographic departmentalization is to strike a balance between standardized manufacturing process, elimination of common activities (in case of product departmentalization) and local decision making (in case of geographic departmentalization). When one form of departmentalization is selected the dilemma for managers is to how to maintain the balance. For example if product departmentalization is opted for then local decision making will be slower and the company may not able to manufacture and sell products that cater to the needs and requirements of a country. This may lead to loss of market share in the long run.

3. Managerial accountability means the accountability of the managers for the decisions and actions taken by them and the consequences of those decisions and actions. Managerial accountability enter into the product vs. geographic departmentalization decision by the fact that managers who will decide whether to go for product departmentalization or geographic departmentalization will be answerable for any negative fallout and consequences of their decision. In other words the managers will have to ensure that their decisions will not negatively impact the strategic outcomes of the company and hurt its interests in the long run. The managers are agents of the stockholders who are principals and hence in case of decisions of product vs. geographic departmentalization the managers will have to ensure that their decisions continue to add more value.

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