E $12-7($Static$)$ Advantages and Disadvantages of Decentralization $($LO $12-2)$

Whether to Centralize or Decentralize to Cut Costs?

A recent survey by PwC finds that cost cutting is a priority for $42\%$ of senior executives. As discussed in the text, one of the disadvantages of decentralization is the possibility of administrative duplication of effort, which increases costs. Some firms have realized this and have centralized certain business functions. For example, in a recent decision, HP has centralized its research and development activities in an effort to reduce costs. Other companies seeking to cut costs by centralizing certain business activities include

Booking.com and Uber.

However, not all companies believe that centralization yields the lowest costs. In contrast, some firms have decentralized operations, believing that empowering employees to use their local knowledge will yield better, cost$-$saving decisions. For example, IKEA, which designs and sells ready$-$to$-$assemble furniture through its over $400$ store locations operating in over $50$ countries, has long been guided by the principle: $"$We do our part. You do your part. Together we save money." Employees at IKEA are encouraged to implement any cost$-$saving measures as long as their decision does not negatively impact product quality or the customer's experience.

Source: Couto, Vinay, Paul Leinwand, and Sundar Subramanian, "Cost Cutting That Makes You Stronger," Harvard Business Review, $2023$; Furr, Nathan, Jur Garlandt, and Andrew Shipilov, "Should Your Global Firm Centralize Digital Operations," Harvard Business Review, $2021.$

Required:

What best describes the cost$($s$)$ HP likely hoped to reduce by centralizing research and development?

Administrative duplication

Dysfunctional decision making

Both Administrative duplication and Dysfunctional decision making

Neither Administrative duplication nor Dysfunctional decision making