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    You are concerned about the company's largest division - lux

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    You are concerned about the company's largest division - luxury - because cost has been increasing much faster than revenue for the last 3 years. However, the head of the division, who reports directly to the CEO, believes that increased cost is simply a result of internal charge backs for what he terms as "overhead." On many occasions, he has stated that "IT and HR are hiring too many people and driving up my costs."

    Discuss with the CEO how the structure of the company impacts the cost of the luxury division. Be sure to discuss how changes could be made to incentivize the head of the three areas to work together to control costs.

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    Solution Preview

    Whenever costs drastically increase in any one area, it should be immediately suggested (usually privately) to the CEO that the area be analyzed. There could be several things actually going on, either intentionally (fraud, theft), or unintentionally, as it sounds in this case. The head of the division "believes" he or she knows the reason for the costs, ...

    Solution Summary

    You are concerned about the company's largest division - luxury - because cost has been increasing much faster than revenue for the last 3 years. However, the head of the division, who reports directly to the CEO, believes that increased cost is simply a result of internal charge backs for what he terms as "overhead." On many occasions, he has stated that "IT and HR are hiring too many people and driving up my costs."

    Discuss with the CEO how the structure of the company impacts the cost of the luxury division. Be sure to discuss how changes could be made to incentivize the head of the three areas to work together to control costs.

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