TOPIC 18 Flashcards
What is decentralization?
-Organizational structure form where there is a delegation of authority by the top management to the middle and lower levels
- For corporations or public sector organizations
Why we use decentralization?
- This is for expansion or one of the business growth stratergy
- For instance, for subsidiary, divisions, JV or franchise
- This is to solve larger problems or issues that occur at local
- People have a better knowledge of problems occur in the localities
- Motivating and empowering employees as there is increased in the employee participation
What is a performance and evaluation control ?
- Process by which the manager’s performance will be assessed whether it is based on the set budgets, plans and also goals
- Management control refers to the evaluation by upper level managers of the performance of mid-level managers, it also focuses on higher level managers and also long term strategic issues
What is operating control ?
- Focuses on detailed short- term performance
- Management by exception control
What will happen if there is no proper management control ??
there will be some risk management failures
- eg. employees will not be performed accordingly
What is the areas that are responsible
Strategic Business Units (SBU)
What is SBU
SBU is a well defined set of controllable operating activities which the SBU manager is responsible
What is the management control objectives ?
- Motivate managers to give a high level of effort to achieve the goals
- Provide the right incentive for managers to make decisions that are consistent with the goals
- Determine fairly the rewards by managers for their effort and skills that have been given
How to achieve the management control objectives
- develop an employment contract between manager and top management
- That contract can promote goal congruence because it specifies the manager’s desired behaviors and also give the compensation to be awarded to them
- The contract can be written or unwritten
What is the challenges of decentralization
- goal congruence
- need to decide whether a well-designed performance measurement system will ensure individual sub-units are working towards the organization’s goal
- Transfer pricing with goal congruence
What is the challenges of decentralization
- goal congruence
- need to decide whether a well-designed performance measurement system will ensure individual sub-units are working towards the organization’s goal
- Transfer pricing with goal congruence
How to design a good management control systems
- Need to know WHO is interested in evaluating the organization’s performance
- Need to know WHAT is being evaluated
- WHEN the performance evaluation will be conducted
- SHOULD system be formal or informal
What is informal system and formal system
Informal system : personal drivers (IND), peer norms (Teams)
Formal system : Hiring practices (IND), performance contracts (Teams)
What is Strategic Performance Measurement
- A system used by top management to evaluate SBU managers
Advantages of centralized firms
Provide more control, expertise of the top management can be utilized
