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Appendix I Chapter10: Decision Rights Decision rights: The level of empowerment Decision Rights-empowerment learning objectives ? Define and apply the concept of decision authority ? State and provide examples of costs and benefits of centralized decision making ? State and provide examples of costs and benefits of decentralized decision making ? State and provide examples of costs and benefits of team decision making I. Assigning tasks and decision rights ? Production process involves tasks bundled into jobs ? Job dimensions — variety of tasks few or many — decision authority limited or broad Dimensions of job design II. Centralization versus decentralization benefits of decentralization ? Effective use of local knowledge — local tastes and preferences — price sensitivities of particular customers ? Conservation of management time senior management focus on strategy ? Training and motivation for local managers Centralization versus decentralization costs of decentralization ? Potential agency problems — effective control systems may be expensive ? Coordination costs and failures ? Less effective use of central information Centralization versus decentralization AutoMart example ? AutoMart sells autos in two cities ? Hierarchy includes CEO and two local managers ? Which decisions are retained by CEO (centralization) and which are delegated to local managers (decentralization) Organization Structure of AutoMart Company Trade-off Determining “ optimal ” decentralization ? D represent the degree of decentralization; ? where A 、B、 C are positive constant ? Benefits of decentralization = B ? D ? Costs of decentralization =(A ? D)+(C ?D 2 ) ? Objective: benefits NB=BD-AD-CD 2 which occurs when D * =(B-A)/2C ? AD represent contracting cost that arise from resolving incentive problems of decentralization ? CD represents the coordination and central information cost. ?D* is the level of decentralization at which the margin