The firm was indicted in March , and later found guilty, for obstructing justice by shredding tons of documents related to its audit work for Enron Corporation.
As a result, Arthur Andersen agreed to cease its accounting practice in the United States in August By , only employees remained at Arthur Andersen to wrap up the dissolution of the firm.
Although the entire firm was indicted and found guilty of obstruction of justice, the decision to shred documents was made at the Houston office, where the bulk of the shredding took place.
This serves as an extreme example of the disadvantage of decentralizing an organization. Note that the U. Supreme Court overturned the guilty verdict of the U. District Court in June , but the damage was done and the firm did not survive. Landscaping Services, Inc. Although Ed has hired several laborers to ease the workload, he is still working seven days a week, 10 hours a day.
Ed would like to hire a manager to assist in managing landscaping projects and has asked for your advice. Skip to main content. Module Decision-making in Organizations.
Search for:. Using Decentralized Organizations to Control Operations Learning Objective Define the term decentralized organization and explain advantages and disadvantages of decentralizing. Reasons to Decentralize Question: Why do organizations decentralize operations?
Advantages of Decentralizing Operations Question: What are the advantages of decentralizing operations for companies like Game Products, Inc.? The advantages of decentralizing are as follows: Increased Expertise. Rather than having one manager, or a group of managers, trying to make decisions for a wide range of products, decentralized organizations delegate decision-making authority to local managers who have expertise in specific products.
Quicker Decisions. Refocus of Top Management Responsibilities. With local managers focusing on issues important to the specific segment, top management is able to delegate the day-to-day decision-making responsibilities and focus on broader companywide issues, such as long-range strategic planning.
Motivation of Local Managers. Managers who are given more responsibility, and the control necessary to manage their responsibility, tend to be more motivated than those who simply follow the orders issued by top management.
In addition, a decentralized structure provides a means to train local managers for promotion to the next level of management. Business in Action Disadvantages of Decentralizing Operations Question: What are the disadvantages of decentralizing operations for organizations, such as Game Products? Three disadvantages of decentralizing are as follows: Duplication of Services.
Organizations that decentralize often duplicate administrative services, such as accounting and computer support. That is, each segment may have its own accounting department and computer support department when these services might be provided more efficiently through one companywide department.
Conflict of Interest. As a result, team members cannot contribute meaningfully at work. Additionally, team members see fewer opportunities for growth and internal company promotions. By now, you should have a good handle on the differences, advantages, and disadvantages between centralized and decentralized management.
Try a Demo. With more than , employees worldwide, Johnson and Johnson has long been known as a decentralized company. They can relate to the needs of the customer, whoever that customer may be. Eventbrite is an event management and ticketing website that allows users to browse, create and promote local events. The company has a decentralization model, where event creators work as managers for a few reasons:.
Eventbrite understands that event creators also known as promoters have a better chance at securing attendees than they do. As a result, they powered 4. Learn more. For example, if you own a remote company, you may benefit more from a decentralized structure. If you own a tech company, you may benefit more from a centralized structure. At BetterUp, we love equipping managers with tools to support their teams.
Request a demo today to find out more. Unlock your best self with mental fitness routines with Tara Lipinski and Johnny Weir. Follow us. What are decentralized organizations? By Maggie Wooll. April 20, - 15 min read. Share this article. Jump to section What is a decentralized organization?
Advantages and disadvantages of decentralization The advantages of decentralization are: Organizations are self-sufficient Since team members and managers are used to working independently, a decentralized organization is more capable of maintaining self-sufficiency if situations arise where business owners need to be away from work.
Faster decision-making While centralized organizations have to wait for decisions to be approved, decentralized organizations are independent enough to make decisions quickly. This is especially important when fast solutions are necessary to prevent losing a customer.
Happier team members and business owners Team members crave meaning and purpose at work, and part of that is being able to make their own decisions and feel like their input and ideas matter. Strengthens leadership skills Centralized structures leave little room for leadership practice , but decentralized structures remove the pressure from upper leaders while allowing mid-level and low-level team members to step up their leadership game.
This is less likely to occur in larger organizations with a talented group of middle managers. Communication barriers When you have independent team members, all responsible for their own roles, workload, and schedules, it can be difficult to communicate without confusion.
Difficulty collaborating With so many different leaders, opinions, and schedules, it can be tough for two different departments to collaborate on a new project or coordinate functions together. Expensive teams Decentralized organizations call for more managers to take responsibility for team members and the overall organization — which means they have to be paid more.
This can add up quickly and cost way more than just hiring a few managers. On the other hand, remaining highly involved in the strategic decisions of the business results in a low level of involvement in the daily decisions of the business.
This, too, is risky because ineffectively managing daily business decisions may have long-term, negative consequences. Managers in some organizations follow legal and regulatory requirements to operate their business at the lowest level of acceptable behavior in their business environment in order to keep costs low; however, some stakeholders may expect more than the minimum level of ethics.
Stakeholders of business organizations are now insisting on higher ethical standards from their organizations. Another alternative for growing businesses is to move toward a decentralized operating structure. The management of growing businesses with a decentralized structure has a low level of involvement in the daily decisions of the business.
Instead, management in these businesses focuses on strategic decisions that impact the long-term success of the organization. Figure Which of the following is not a common goal of an organization? Figure Which of the following does not describe a management control system? Figure What is a management control system? What are its components and how does the system help the business?
Once the goals are developed, goals must be communicated throughout the organization and activities of the organization should align to achieve the strategic goals. Figure Identify and describe the levels of management, including the various types of decisions managers at each level make. Figure Discuss the difference between centralized and decentralized organizations.
Does the size of the organization influence whether the organization has a centralized or decentralized structure? Centralized organizations reserve decision-making authority for top management. Decentralized organizations disperse decision-making throughout the organization. Companies of all sizes may exhibit tendencies for both centralized and decentralized decision-making.
For example, while Apple might give its stores great latitude to meet customer needs, the company will reserve research and development activities for the highest levels of the organization.
Figure Identify a company where you recently shopped. Assume the company operates with a decentralized structure. Describe how customers might benefit from the decentralized structure. Figure Discuss the difference between daily and strategic decisions. Think of a business and provide an example of a daily and strategic decision. Daily decisions are frequent and usually have a short-term impact.
Strategic decisions are infrequent and usually have a long-term impact. Daily decisions impact the operational effectiveness and efficiency of the organization while strategic decisions address the long-term aspect of the business.
For example, daily decisions for a grocery store might relate to signage, displays, and inventory levels to maintain. Strategic decisions for a grocery store might include whether or not to offer online ordering or leasing in-store space to other businesses such as a coffee shop, nail salon, or bank. What are the segments? How are the segments categorized? Explain why these activities would be centralized functions within PepsiCo as opposed to decentralized like many other activities.
These activities represent a significant cost to the organization, require specialization, relate to strategic and quality goals, and allow for benefits related to buying power.
Also, there is the possibility that without centralizing some of these costs, they might experience a significant cost overrun. For example, the company might want to finance capital improvements, and they often can do so less expensively, in terms of interest rates, by packaging bonds into one issue.
Similar cost savings and improvements in operational efficiencies could probably be identified in the other examples listed. Figure You have just been elected president of a brand-new service club on campus. The club is part of a national organization, but the organization charter gives the local organization a fair amount of flexibility in setting up the management of the club. As president, you can choose to make most of the decisions for the club and pass along your direction to the officers and members below you, or you can create specific committees, such as membership or academic, and allow each of the committees to make its own decisions and rules within the overall guidelines set out by the national charter.
Consider the need to manage and evaluate the club and describe which form of organization would you set up for your club and why. Skip to content Responsibility Accounting and Decentralization. Management Control System It is important for those studying business and accounting, in particular to understand the concept of a management control system. Double Loop Learning. The Ethical Bakery Accountant. Centralized Organizations Centralization is a business structure in which one individual makes the important decisions such as resource allocation and provides the primary strategic direction for the company.
Decentralized Organizations Decentralization is a business structure in which the decision-making is made at various levels of the organization. Advantages of Decentralized Management Many businesses operate in markets and industries that are highly competitive.
There are numerous advantages of a decentralized management, such as: Quick decision and response times—it is important for decisions to be made and implemented in a timely manner. Better ability to expand company—it is important for organizations to constantly explore new opportunities to provide goods and services to its customers.
Increased morale of employees—the success of an organization depends on its ability to obtain, develop, and retain highly motivated employees.
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