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PROFIT PLANNING AND CONTROL FOR DECENTRALIZED CORPORATIONS
Author(s) -
PEGELS C. C.,
SOUTHWICK L.
Publication year - 1970
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/j.1540-5915.1970.tb00769.x
Subject(s) - profit (economics) , business , control (management) , resource allocation , overhead (engineering) , microeconomics , industrial organization , economics , operations management , computer science , market economy , management , operating system
Managers of profitable firms frequently have a great deal of latitude in their decisions on resource allocation. Because they are often not the owners of their firms, their objectives may not be the maximum profit goal envisioned by classical economics. A more likely objective may involve a combination of profit and personal power. It is thus likely that some profits will be sacrificed to excess staff expenditures. For a large, decentralized firm such as a conglomerate, the adverse effect on profits caused by such motives in the subunit managers may be severe. However, direct intervention in subunit management may cause other deleterious effects. This paper utilizes the assignment of central office overhead as a motivating force and develops a formula for the optimal allocation of this overhead. Thus, direct intervention is minimized and the goals of subunit managers are utilized to achieve the desired result of higher profits.