Decentralization is lauded as important to good management. But it is not without its problems.Required:Identify the advantages and disadvantages of decentralization? How do ROI, Residual Income, and EVA affect these issues?
What will be an ideal response?
Advantages include:
? When individuals are given decision-making opportunities and autonomy, they take ownership of their decisions, hopefully, leading to better decisions.
? When decision-making is delegated to the lowest possible level in the organization, individuals can react quickly to opportunities and threats and take advantage of their expertise.
? Giving the individual with the most knowledge and specialization in an area, often individuals at lower levels, more decision making authority should lead to better decisions and greater levels of motivation.
? Allowing individuals to make decisions and manage autonomously will provide training for the future.
? When people are given ownership of their decisions, they make better decisions and devote the highest and best level of managerial effort.
? Allowing lower level managers to make decisions frees up time from upper management to devote to strategic decisions.
Disadvantages:
? A lack of goal congruence can result from decentralization. If individuals are making decisions in their own best interest, they may not be making them in the overall company best interest.
? Decentralization may mean the duplication of decision making - which can result in an inefficient use of resources and a lack of consistency in decision making.
? Individuals making decisions at lower levels might have a narrow focus and be unable to see the "big picture."
ROI, Residual Income and EVA can be used as management evaluation tools. Bonuses and rewards are often based upon maintaining or increasing ROI, Residual Income, and EVA.
? Their use can enhance a focus on the individual department, but may further the problems of decentralization.
? Their use allows managers to focus on profit, but not a balanced scorecard.
? Their use allows comparisons among managers and subunits with different levels of resources.
? Their use can encourage investment or inhibit investment if used improperly.
? When the overall company ROI, Residual Income, and EVA are used as well as those of the individual department, some decentralization problems are reduced.
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