Idee GmbH is a company that develops bespoke educational computer software. The company is based in Germany. It has recently acquired two companies: Welt and Zero.

Welt is a well-established company that is also based in Germany. It develops educational computer software and was a direct competitor of Idee GmbH (i.e., prior to the acquisition). Zero, which is based in Southeast Asia, is a new but rapidly growing company that develops off-the-shelf educational software and also produces DVDs. Zero was acquired so that it could produce DVDs for Idee GmbH and Welt.

The Managing Director of Idee GmbH has now realised that the acquisition of these two companies will cause problems for him in terms of planning, control, and decision-making. He is thinking of implementing a decentralised structure but is unsure of the advantages and disadvantages of such a structure, of how much autonomy to grant to the new companies, and also which performance measure to use to appraise their performance. Consequently he has contacted you, the Finance Director of Idee GmbH, for help.

Required:

Write a report to the Managing Director which:

1. Explains the advantage and disadvantages that would be experienced by Idee GmbH in operating a decentralised structure;
2. Explains which type of responsibility centres you would recommend as being the most appropriate for Welt and Zero in a decentralised structure; and
3. Critically evaluates the possible use of the financial performance measures return on investment (ROI) and residual income for the decentralised structure of Idee GmbH.