In a vertically centralized organization, decision-making authority is concentrated at the top levels of management. As a company rapidly expands, maintaining tight control by a small management team can lead to inefficiencies, delays, and suboptimal decision-making due to limited input from operational and frontline staff.

Let’s analyze each option:

Option A: Lack of coordination among different business units

Incorrect. While coordination challenges can exist in a large, decentralized organization, a tightly controlled, centralized structure typically ensures strong coordination but at the cost of slower decision-making.

Option B: Operational decisions are inconsistent with organizational goals

Incorrect. In a centralized structure, top management closely controls decision-making, making goal misalignment less likely.

Option C: Suboptimal decision making

Correct.

Decentralized decision-making allows managers closer to operations to make informed, timely decisions.

A small centralized team may lack specialized knowledge about different departments, leading to inefficient or outdated decisions.

As the company expands, delays in decision-making and lack of responsiveness to market conditions increase risk exposure.

IIA Reference: Internal auditors assess organizational structures to identify risks associated with inefficient decision-making and control bottlenecks. (IIA Standard 2110: Governance)

Option D: Duplication of business activities

Incorrect. Duplication of activities is more common in decentralized structures, where different departments operate independently. A tightly controlled, centralized structure reduces redundancy but at the cost of decision-making efficiency.

Thus, the verified answer is C. Suboptimal decision making.