Chapter 11 (Theory Flashcards
Decentralized organization
An organization in which decision-making authority is not confined to a few top executives but rather is spread throughout the entire organization
Advantages of a decentralized organization #1
By delegating day-to-day problem solving to lower-level managers, top management can concentrate on bigger issues, such as overall strategy.
Advantages of a decentralized organization #2
Empowering lower-level managers to make decisions puts the decision-making authority in the hands of those who tend to have the most detailed and up-to-date information about day-to-day operations.
Advantages of a decentralized organization #3
By eliminating layers of decision making and approvals, organizations can respond more quickly to customers and to changes in the operating environment.
Advantages of a decentralized organization #4
Granting decision-making authority helps train lower-level managers for higher-level positions.
Advantages of a decentralized organization #5
Empowering lower-level managers to make decisions can increase their motivation and job satisfaction.
Disadvantage of a decentralized organization #1
Lower-level managers may make decisions without fully understanding the company’s overall strategy.
Disadvantage of a decentralized organization #2
If lower-level managers make their own decisions independently of each other, coordination may be lacking.
Disadvantage of a decentralized organization #3
Lower-level managers may have objectives that clash with the objectives of the entire organization.1 For example, a manager may be more interested in increasing the size of his or her department, leading to more power and prestige, than in increasing the department’s effectiveness.
Disadvantage of a decentralized organization #4
Spreading innovative ideas may be difficult in a decentralized organization. Someone in one part of the organization may have a terrific idea that would benefit other parts of the organization, but without strong central direction the idea may not be shared with, and adopted by, other parts of the organization.
Responsibility Center
Any business segment whose manager has control over costs, revenues, or investments in operating assets.
Cost Center
A business segment whose manager has control over cost but has no control over revenue or investments in operating assets.
Examples of Cost Centers
Service departments such as accounting, finance, general administration, legal, and personnel are usually classified as cost centers. In addition, manufacturing facilities are often considered to be cost centers
Examples of a Profit Center
A business segment whose manager has control over cost and revenue but has no control over investments in operating assets.
Investment Center
A business segment whose manager has control over cost, revenue, and investments in operating assets.
What is included in Operating Assets?
cash, accounts receivable, inventory, plant and equipment, and all other assets held for operating purposes.
How is Margin improved?
improved by increasing selling prices, reducing operating expenses, or increasing unit sales
Criticisms of ROI
1) Managers may increase ROI in a way that hurts the overall goal of the company
2) It isn’t great for judging a manager’s ability
3) Managers being evaluated by ROI may reject business investments that would help the whole company but hurt his segment
Criticisms of Residual Income
It can’t be used to compare the performance of divisions of different sizes. Larger divisions often have more residual income than smaller divisions, not necessarily because they are better managed but simply because they are bigger.
Balanced Scorecard
An integrated set of performance measures that are derived from and support the organization’s strategy.
Four Groups of a balanced scorecard`
financial, customer, internal business processes, and learning and growth.
Financial Scorecard
ROI, Residual Income, Gross Margin
Learning & Growth
Suggestions by EMP, Biggest Resource, Certificatons, Continued Training/Conferences
Internal Business Process
Number of Accidents by facility #Students enrolled
Customer
Market Shares, Return Sales, Customer Feedback
