Latest Styles, Inc. (LSI), supplies a limited range of garments to several boutiques in New York. LSI produces these garments in a small factory owned and operated in Nuevo Laredo, Mexico. LSI has been more responsive to the boutiques' needs for delivery of changing styles than have the Asian garment producers, where shipmients take 30 days. As a result, several other boutiques have approached LSI as a potential supplier. Victoria Johnson, president of LSI, has decided that expansion will be required to meet the needs of these additional boutiques.

After discussing the situation with her colleagues, Frank Corrigan, controller, and Tom Conway, production and shipping manager, it was agreed that the expansion should be un¬

dertaken. Since Johnson makes most of the decisions that involve day-to-day operations and does the majority of the designing, Corrigan and Conway are concerned about her ability to manage the expansion at the same time. Corrigan and Conway expressed this concern in a meeting with Johnson, who agreed that the additional workload resulting from the planned expansion would be too great for her to handle. Accordingly, Johnson has decided to dele¬

gate some of these increased functions to Corrigan and Conway.

During these discussions,Johnson stated that, in view of the passage of the North Amer¬

ican Free-Trade Act (NAFTA), she is considering even further expansion to increase the range of garments produced and to supply boutiques in Philadelphia and Boston, as well.

Consequenctly, she is considering further decentralization of the business. Expanded oper¬

ations in Mexico, increased product lines, and supplying two new geographical areas will require hands-on, operational management at these locations to keep up with inventory needs and differing local fashion trends. Both Corrigan and Conway are capable of handling these operational duties, although they will need to hire new managers to assist them in the expansion and decentralization.

Required:
1. Decentralization is the extent to which power and authority are systematically dele¬
gated throughout an organization.

a. Discuss the factors that generally determine the degree of decentralization in an organization.

b. Describe several benefits to an organization that can generally be derived from decentralization.

c. Discuss several disadvantages to an organization from decentralization.
2. How does the NAFTA affect Victoria Johnson's decision? (CMA adapted)