1 / 19

Decentralization in Organizations

Decentralization in Organizations. Benefits of Decentralization. Top management freed to concentrate on strategy. Lower-level managers gain experience in decision-making. Decision-making authority leads to job satisfaction. Lower-level decision often based on better information.

rrivera
Download Presentation

Decentralization in Organizations

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Decentralization in Organizations Benefits of Decentralization Top management freed to concentrate on strategy. Lower-level managers gain experience in decision-making. Decision-making authority leads to job satisfaction. Lower-level decision often based on better information. Lower-level managers can respond quickly to customers.

  2. Decentralization in Organizations May be a lack of coordination among autonomous managers. Lower-level managers may make decisions without seeing the “big picture.” Disadvantages of Decentralization Lower-level manager’s objectives may not be those of the organization. May be difficult to spread innovative ideas in the organization.

  3. Investment Centers Cost Centers Responsibility Centers Superior Foods Corporation provides an example of the various kinds of responsibility centers that exist in an organization.

  4. Responsibility Centers Profit Centers Superior Foods Corporation provides an example of the various kinds of responsibility centers that exist in an organization.

  5. Responsibility Centers Cost Centers Superior Foods Corporation provides an example of the various kinds of responsibility centers that exist in an organization.

  6. A segment is any part or activity of an organization about which a manager seeks cost, revenue, or profit data. A segment can be . . . A Sales Territory A Service Center Decentralization and Segment Reporting An Individual Store Quick Mart

  7. Traceable costs arise because of the existence of a particular segment and would disappear over time if the segment itself disappeared. No computer division means . . . No computer division manager. Identifying Traceable Fixed Costs

  8. No computer division but . . . We still have a company president. Identifying Common Fixed Costs Common costsarise because of the overall operation of the company and would not disappear if any particular segment were eliminated.

  9. Net operating income Average operating assets ROI = Return on Investment (ROI) Formula Income before interest and taxes (EBIT) Cash, accounts receivable, inventory, plant and equipment, and all other assets held for operating purposes.

  10. Net operating income Average operating assets ROI = Net operating income Sales Margin = Sales Average operating assets Turnover = Margin  Turnover ROI = Return on Investment (ROI) Formula

  11. There are three ways to increase ROI . . . Increasing ROI • Reduce • Expenses • Reduce • Operating • Assets • Increase • Sales

  12. ROI and the Balanced Scorecard It may not be obvious to managers how to increase sales, decrease costs, and decrease investments in a way that is consistent with the company’s strategy. A well constructedbalanced scorecardcan provide managers with a road map that indicates how the company intends to increase ROI. Which internal business process should be improved? Which customers should be targeted and how will they be attracted and retained at a profit?

  13. In the absence of the balanced scorecard, management may not know how to increase ROI. Managers often inherit many committed costs over which they have no control. Managers evaluated on ROI may reject profitable investment opportunities. Criticisms of ROI

  14. Residual Income – AnotherMeasure of Performance The net operating income that an investment center earns above the minimum required return on its operating assets.

  15. Calculating Residual Income ( ) This computation differs from ROI. ROI measures net operating income earned relative to the investment in average operating assets. Residual income measures net operatingincome earned less the minimum requiredreturn on average operating assets.

  16. Motivation and Residual Income Residual income encourages managers to make profitable investments that would be rejected by managers using ROI.

  17. Divisional Comparisonsand Residual Income The residual income approach has one major disadvantage. It cannot be usedto compare the performance of divisions of different sizes.

  18. Transfer Prices – Key Concepts/Definitions A transfer price is the price charged when one segment of a company provides goods or services to another segment of the company. The fundamental objective in setting transfer prices is to motivate managers to act in thebest interests of the overall company.

  19. Transfer Prices – Key Concepts/Definitions • There are three primary approaches to setting transfer prices: • Negotiated transfer prices • Transfers at the cost to the selling division • Transfers at market price

More Related