Similarly, a hotel chain can achieve economies of scale by opening at new locations, as a departmental store repeats its business model by operating many stores in markets that serve different customer range.
Crucial control problems surface such companies because of the vast network creating information asymmetries among the units answerable to customers and the headquarters. Such situations demand expertise of the local management more than the headquarters comparatively. Companies try to resolve the issues faced in controlling multiple markets through their organizational design and control choices.
There are market type dispersions due to changing customer demand; it is not related to geographical dispersion necessarily. It is a possibility that there are strongly different types of customers in any two units of a company although they are not far from each other geographically. For example convenience stores in the ethnic population in Chicago attend to customers of totally different ethnicities although distance from one store to the other is just some blocks. The same cannot be true always, as it also happens that units are situated far away from each other geographically but customer base is the same.
Some of the operational decisions can be delegated to unit managers like maintaining stock levels and customer-relationships but crucial operational and strategic decisions need to be taken by the headquarters like spending on advertisement, purchase and choosing the service or product mix. It becomes challenging to take these decisions by the headquarters when market-type dispersion is high. It creates two control problems, first, due to difference in local conditions, it becomes difficult to keep a check on managers and control them, as serving different markets. Secondly, wide customer base demands won’t be easy to satisfy from a demand perspective.
One way of dealing with information asymmetries