Solution
David answered on
Dec 29 2021
Running Head: VERTICAL RESTRAINTS
Vertical Restraints 3
Running Head: VERTICAL RESTRAINTS
Vertical Restraints
Name
Institution
Problem 1
A vertical structure of production comprises of a franchisor and franchisee. Examples of franchises include Smith Auto Company and American Samoa Company. Strategic decision-making taken by either franchisor or the above named companies determine the quality of services and goods provided. Generally, the decision made determines the economic effectiveness with which the service or the product is offered in the market (Zeidman, 1988).
According to Rey & Tirole (1986), vertical restraint refers to competition restrictions made in agreement between firms or persons operating at different levels of production and distribution process. There are different forms of vertical restraints that range from maintaining retail prices and accepting returns of any manufacturer’s products. However, vertical restraints are very different from horizontal restraints that are found in agreements made between horizontal competitors.
The consequences of Vertical Restraints provisions in any franchisee agreement can be felt in the firms’ strategic decisions. For example, Smith Auto Company may decide to re-assign risk efficiently if the Franchiser does not have a stable risk management strategy (Rey & Tirole, 1986).
While making strategic decisions American Samoa Company may decide to protect their rights in the intellectual property and try to limit any opportunistic behavior. For instance, if a franchiser decides to have an open door outlet facility in the Franchise Contract, the American Samoa Company may decide to have flexible doors in order to avoid theft cases (Commission Notice, 2000).
The vertical Restraints provisions determine the percentages of profit figures between a franchisor and franchisee. For example, Smith Auto Company may decide to increase the prices of manufacturers' standards to meet the high labor demand in the region.
Problem 2
Organizational Designs
According to Sharma (2006), centralization can be defined as the process by which all activities of an organization, especially in decision making and planning become concentrated in a particular group or location. Meaning that the decisions are made at the top of a chain of command.
In a centralized system, there is cost reduction since the decisions are made from one central point. There is uniformity in actions since the management gives similar instructions to all the employees. In addition, there is personal leadership by the top management of the firm. In centralization, the operations are coordinated well reducing chances of duplication. Generally, there is improved performance since the management lays out the plans and the employees just follow the issued guidelines in performing their duties. Finally, the supervision is made easier since the goals and means of attaining them are clearly stipulated. Thus, a company that has a centralized management system is very efficient and effective compared to decentralization.
On the other hand, decentralization is the process of distributing planning and decision-making responsibilities to various people in an organization. This involves dispersing authority to various heads of departments of sections in corporate firms.
Decentralization system of management creates room for flexibility in an organization. This is because any department in an organization is able to make decisions independently based on their unique circumstances. Decentralization reduces delay in work delivery and allows each department or section to give special attention to the work delegated to them.
In addition, decentralization improves the confidentiality of an organization since sensitive information is not shared among many departments. Finally, when there is decentralization, minimal supervision is required since each department is aware of their duties and do not have to follow strict instructions from the management.
The decision on which system of management to apply, between centralization and decentralization should be based on the structure and objectives of an organization or corporate firm. This is because both systems are efficient and effective (Sharma, 2006).
Multidivisional and Unitary Forms of Organization
There are two forms of organizations namely multidivisional and unitary forms of organization. March & Simon (1993) describes an M-Form organization as a multidivisional organizational structure in which a firm is separated into semi autonomous units that are controlled and guided by targets from the centre. On the other hand, unitary or the U form organization is one that has a unitary or functional form of organization with several functionally organized units or departments and a central management unit.
An example of a multidimensional firm is the Unilever. This is a...