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Operational Strategy: Balancing Planning and Control

2. Recapping from Last Class. Coordination across functions and business units is a major challenge.Creating incentive compatibilities is key.Minimizing incentive incompatibilities essential for smoother functioning.Firms organize themselves to minimize transaction costs.Markets motivate, Hierar

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Operational Strategy: Balancing Planning and Control

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    1. Operational Strategy: Balancing Planning and Control Vish V. Krishnan The University of Texas at Austin

    2. 2 Recapping from Last Class Coordination across functions and business units is a major challenge. Creating incentive compatibilities is key. Minimizing incentive incompatibilities essential for smoother functioning. Firms organize themselves to minimize transaction costs. Markets motivate, Hierarchies coordinate. Double marginalization is the phenomenon under which profits in a vertically integrated firm is higher than the combined profit of unbundled firms (with monopoloy power). Transaction characteristics, Value chain profit patterns, and Channel structures should influence scope decisions.

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