Megaline, Inc., with five divisions, follows the competitive form of the multidivisional structure. One division has not met the rate-of-return goals for the past year. Another division has exceeded the rate-of-return goals. The other three divisions met the rate-of-return goals. The headquarters office must decide where to allocate capital in the next year. Which scenario is the MOST likely?
A) The poorest-performing division will get the highest capital allocation so that it can fix its problems and achieve the rate-of-return goal next year.
B) The highest-performing division will get the highest capital allocation because it has the best prospects for creating more wealth for the shareholders next year.
C) The average-performing divisions which met the rate-of-return goals will receive the highest allocation because their performance exactly matched corporate requirements.
D) All divisions will receive the same capital allocation for the next year because this organizational structure rewards divisional managers based on achievement of strategic goals.

Question

Quizplus · Accepted Answer

In a competitive form of the multidivisional structure, the emphasis is on individual division performance and competition among the divisions. Therefore, it is most likely that the highest-performing division will receive the highest capital allocation in order to support its continued success and maximize wealth creation for the shareholders. Allocating more capital to the poorly performing division may not necessarily solve its underlying issues and could even lead to further losses. Allocating more capital to the average-performing divisions may not provide enough incentive for them to strive for higher levels of performance. Allocating equal capital to all divisions does not take into account their individual performance levels and would not incentivize top-performing divisions to continue to excel.