Determining transfer pricing

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As functions specialize, skills and abilities improve, and the core competences that given an organization a competitive advantage emerge. A many organizes jobs into functional areas to offer consumers high-quality products at reasonable prices. There are some advantages of a Functional Structure: * People with common skills share information for problem solving or accomplishing a task. Learning from peers increases skills and abilities. People can supervise each other and meet work schedules.

Peer supervision is key if work is complex because supervision from above is difficult. * Working closely, peers develop norms and values that increase their effectiveness and loyalty. According to Garment Jones (201 0), Multidimensional structure is a structure n which support functions are placed in self-contained divisions, each with their own support functions and control. A multidimensional structure is appropriate if products are different and are sold in many markets.

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Because products differ, centralized support functions at the top is infeasible. An automaker doesn’t know how to market a computer. The multidimensional structure has a corporate headquarter, organized functionally and responsible for overseeing division managers. Staff members facilitate integration to share information quickly among divisions. A multidimensional structure can control many businesses. For example, most Fortune 500 companies, like General Motors, have a multidimensional structure because it permits growth and retention of control.

There are some disadvantage of a Multidimensional Structure: * Determining what authority to centralize or decentralized from the corporate to the divisional level * Coordination problems from uncooperative divisions competing for resources * Determining transfer pricing, the price of a product or service sold by one division to another * Higher bureaucratic costs * Distorted information, resulting in communication problems A functional Truckee is used for one business, it simpler than multidimensional structure which has more integration, more horizontal and vertical differentiation.

A company adopts a multidimensional structure because corporate managers have to control the number and complexity of different products. References lone, G. (2010). Organizational theory, design, and change (6th De. ) Upper Saddle River, NJ: Prentice Hall. Http:/Maw. Scribed. Com/doc/7974301/Organizational -THEORY-DESIGN-AND -CHANGE-Chapter-06 http://www. Scribed. Com/doc/20200601/Coca-Coca-Organizational-Theory Question 12 As organizations grow and differentiate, problems can arise with a functional structure.

Describe and explain the problems that may arise and how organizations may respond. Justify your answers using real life examples, A functional structure controls people and resources and develops core competences. As organization grow and differentiate, everything becomes more complex, each function tries to maintain the company’s position. The problems often may arise is as an organization’s skills and abilities increase and the organization is able to produce a better or wider variety of goods or revise, its ability to service the needs of its growing product line is strained.

Control problem arise because of producing products fast enough, a uniform high quality, starting increase of cost, staying ahead of the competition. According to Garment Jones (2010), there are some problems that functional structures face: * Communication problems. A organizational functions become increasingly distant from one another as more organizational functions develop. Communications problems come from developing different subunit orientations. There are many functions in organizations such as Sales, Manufacturing, and R – each functions has differences in perception.

For example, in a company produce helmet, Sales thinks the need to increase revenues by satisfy customer demands quickly is the organization’s main problem; manufacturing thinks the main problem is to find cheaper material has same quality and simplify products to reduce costs. R& D thinks the biggest problem is to increase a product’s technical sophistication such as add more useful part to the helmet. * Measurement problems. Evaluating the cost and contribution of each function to a product is difficult as organizations grow and the number and implicitly of their functions and products increase.

Managers cannot allocate functional costs to each individual product – that’s the reason why managers are unaware of one or more products might actually be losing the company money. * Location problems. When a company grows, the setting up shop and establishing manufacturing or sales facilities in different geographic regions require company must balance decision-making between centralized functions and regional managers. An organization with more than one location must develop a control and information system. For example, Chime produce plastic eosin and they have distribution centers in each country such as China, Vietnam, Thailand, … Etc. * Customer problems. Organization’s products increases demeans more and more customers are attracted to the organization and they have different kinds of needs. New types of customers require customized products to meet their needs. Functional structure organization may lose sales opportunities. * Strategic problems. Top managers may have to spend so much time for solving daily coordination problems as many things becomes more complex. That is the reason prevents top managers from focusing on long- ERM strategic issues, resulting in a loss of strategic direction.

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