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Coordination of Decentralized Departments and the Implementation of a Firm-wide Differentiation Strategy

In: Operations Research Proceedings 2007

Author

Listed:
  • Christian Lohmann

    (Ludwig-Maximilians-University Munich)

Abstract

This study regards a two-stage value chain of a decentralized company. The separated investment centers can implement a firm-wide differentiation strategy by making specific investments. The focus is set on a situation where the upstream manufacturing department invests in product quality improvements and the downstream marketing department invests in marketing operations. The specific investments are totally defrayed by the units acting on their own authority. Because both specific investments affect the whole revenue in the same way increasing customers demand and customers willingness to pay, the allocation of the profit induced by the specific investments is not made cost reflective. An underinvestment problem arises, witch endangers the objective of firm-wide profit maximization.

Suggested Citation

  • Christian Lohmann, 2008. "Coordination of Decentralized Departments and the Implementation of a Firm-wide Differentiation Strategy," Operations Research Proceedings, in: Jörg Kalcsics & Stefan Nickel (ed.), Operations Research Proceedings 2007, pages 317-322, Springer.
    • Handle: RePEc:spr:oprchp:978-3-540-77903-2_49
    DOI: 10.1007/978-3-540-77903-2_49
    as

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