[Get Solution] Decentralized Versus Centralized Organizations
Define and then compare and contrast decentralized versus centralized organizations. Tell how they work and how they measure the performance of those charged with management. Share your experience with either or both types of organizations. Which type do you feel results in better leadership and management of the organization. I also need to reply 2 of my classmates: —————————————————————————————————————————— 1Post classmate: Definition of Decentralized Organizations Decentralized organizations are companies that delegate responsibility and decision making to different managerial responsibilities rather than concentrating decision making power at the top tier. As such, the lower level management has greater autonomy and independence in executing their functions at the sub-unit level (Noreen, Brewer & Garrison, 2020). It is advantageous in that it leads to informed and timely decisions as well as a faster approach to the development of the management unit as a whole. Additionally, high employee morale and improved management focus are other benefits of the approach. Sub optimization is the main demerit as specific actions are beneficial to a subunit but detrimental to the company. How Decentralized Organizations Work In decentralized firms, each department forms a subunit of the organization which encompasses the whole unit. At the company level, the heads of department form the part of the lower level management tier. Decision making and responsibility is delegated to the subunit with independence and autonomy (Noreen, Brewer & Garrison, 2020). There are streamlined efforts for goal congruence and managerial endeavors. Notably, every responsibility center creates its system of operation with a feedback circuit for information and strategic purposes. The system is evaluated in terms of efficiency or productivity compared with allocated resources and effectiveness in achieving set goals. How they Measure Management Performance Performance appraisal of decentralized companies is difficult because responsibility is delegated across the organization. The process entails the implementation of measurement tools with regards to results. Tracking of the results is followed to the specific individuals responsible for the result (Indjejikian & MatÄjka, 2012). A good measure is a return on investment, which is gauged via the bookkeeping system or the accounting system. It is successful as expenses along with incomes are divided and assigned to particular responsibility centers and projects, respectively. Another tool used for measuring management performance is customer satisfaction. It uses market share data as well as customer retention data. References Indjejikian, R., & MatÄjka, M. (2012). Accounting Decentralization and Performance Evaluation of Business Unit Managers. The Accounting Review, 87(1), 261-290. Retrieved August 24, 2020, from http://www.jstor.org/stable/41408068 Noreen, E.W., Brewer, P.C. & Garrison, R.H. (2020). Managerial Accounting for Managers. 5th Edition. New York, NY: McGraw Hill Education. 2nd post classmates: Decentralized organizations are those, which have delegated operational and decision-making responsibilities to managers at different segments, divisions, or subunits. Pellinen, Teittinen & Järvenpää (2016) define decentralized organizations are those whose organizational structure fosters the delegated decision-making. In decentralized organizations, the performance of those charged with management is measured through an assessment of several key performance factors of their units. Key areas used to assess performance include the responsibility of their accounting systems, their divisions residual income, operating performance, balanced scorecard, and return on investment (ROI). These key strategies could help in ensuring better control over decentralized organizations. Accounting responsibility is one critical way of assessing the performance of managers of the organizations divisions. As per Lee & Yang (2011), this entails the assessment of cost, profit, and investment aspects and then linking them to the decision-making authority of the lower-level managers. According to Vejde & Sjökvist (2015), decentralized organizations grant managers with authority over costs, revenues, and investments when it comes to the operation of assets. Each manager can, therefore, be evaluated using their units residual income and return on investment. The performance of those charged with management can also be measured using operating performance. Pellinen, Teittinen & Järvenpää (2016) refer to operating performance as an evaluation of an entitys performance using the minimum returns from the firms operating assets. This is the net income, which investment centers earn, and it should be above the required minimum for the return of the operational assets (Lee & Yang 2011). This is essentially an adaptation from the residual income, and it determines the units Economic Value Added index. Using a balanced scorecard essentially entails assessing the performance of the organizations decentralized divisions using the aforementioned factors. From the works of Vejde & Sjökvist (2015), using the residual income to evaluate the performance of a unit means assessing the ability of managers to make profitable investments. This approach also entails the use of ROI in assessing the ability of managers to make sound investment decisions in line with the companys strategy. References: Lee, C. L., & Yang, H. J. (2011). Organizational structure, competition, and performance measurement systems and their joint effects on performance. Management accounting research, 22(2), 84-104. Pellinen, J., Teittinen, H., & Järvenpää, M. (2016). Performance measurement system in the situation of simultaneous vertical and horizontal integration. International Journal of operations & production management. Vejde, C., & Sjökvist, H. (2015). Consolidation of performance measurement in decentralized organizations.