How Company Structure Affects the Costs of the Luxury Division

Posted: October 17th, 2013

How Company Structure Affects the Costs of the Luxury Division







How Company Structure Affects the Costs of the Luxury Division

Companies should continually adapt their structures to match changing strategies. Superior Living Company is looking to expand and go public, changes that will be better navigated with a relevant structure. Moving from unrelated to related diversification increases the bureaucratic costs associated with managing a multi-business model (Hill & Gareth, 2010).

The ideal organizational structure for Superior Living should consider the streamlining of processes, resources available, the coordination of personnel and the overall costs implications.

The current divisional structure is relevant in terms of the level of product specialization required in each product. This means operational costs of the luxury division are high, and the firm misses the advantages of manufacturing economies of scale due to differentiation. This can, however, not be altered without compromising the quality because product differentiation offers a larger range of opportunities for competitive advantage (Miltenburg, 2005). On the other hand, the structuring of different marketing and sales department unnecessarily decreases the level of horizontal integration. This increases the costs of Luxury (and other) division by replicating effort.

The way the decision-making authority is structured is also increasing the operational costs unnecessary. Independent Human resource and IT divisions mean personnel decisions with cost implications on the Luxury division can be made without consulting the division head. This may result in redundant employees.

The role of strategic decision-making in the current structure also has negative implications on the firm’s future. The locus of decision-making control is up to the division level. This has the different divisions operating as separate units and forgetting that they work for the same company. This compromises the interdepartmental communication resulting in costly bureaucracy.

Changes Giving Incentive to Department Heads To Manage Costs

The finance VP needs to improve the communication between the division heads of the Luxury, Human Resource and IT departments. He can do this by implementing acceptable changes such as having the heads team up to come up with interdepartmental communication and cost management policies. He should have the CEO back him up to increase his credibility with them. Improved communication would prevent the costs of replicated effort.

All the division heads should be taught to view the company as one and not just think in terms of their divisions. The finance VP could use their desire to head any new divisions resulting from a merger with new acquisitions as a motivation. The opportunity to move up the ranks in should be made dependent on their cooperation. He should also engage the CEO in the creation of knowledge sharing policies facilitated by the IT department that has access to the whole company’s information. This would manage costs by having those with good cost management practices teach others. The divisions with the best cost management practices could also be rewarded financially or otherwise.

Auditing professionals could also be consulted due to their independent outlook. Historically, professional independence of auditors has been set by reputable supervisory bodies (Morris, McKay & Oates, 2009). An auditor would thus be able to analyze the situation impartially earning the trust of all concerned. They would also be unaware of internal politics hence the ability to present facts without fear of repercussions. The Finance VP can also communicate the importance and relevance of cost management on their future. This extra accountability will help the entire company effectively transform in to a publicly held company. Public companies are usually under more critical scrutiny than private ones. The increased accountability may also prevent any future inefficiency that could damage their public image thus harming future employment prospects.






















Hill, C. & Jones, G. (2010). Strategic Management Theory: An Intergrated Approach. Mason, OH: Southwestern Cengage Learning.

Miltenburg, J. (2005). Manufacturing strategy: How to formulate and implement a winning plan. Newyork, NY: Productivity Press.

Morris, G., McKay, S. & Oates, A. (2009). Finance director’s handbook. Amsterdam; Boston; London: CIMA.

Expert paper writers are just a few clicks away

Place an order in 3 easy steps. Takes less than 5 mins.

Calculate the price of your order

You will get a personal manager and a discount.
We'll send you the first draft for approval by at
Total price: