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Chapter 5

Management and Organizational Studies 1023A/B Chapter Notes - Chapter 5: Profit Center, Kaizen, Job Satisfaction


Department
Management and Organizational Studies
Course Code
MOS 1023A/B
Professor
Maria Ferraro
Chapter
5

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MOS- Chapter 5 Performance Evaluation in Decentralized Organizations
Decentralization of Decision-Making
organizations have no choice but to decentralize by giving lower-level manager the authority to
make specified decisions
Benefits and Costs of Decentralization
BENEFITS OF DECENTRALIZATION
1. Permits timely decisions with the best available information
2. Tailors managerial skills and specializations to job requirements
delegating decision-making to individuals with appropriate functional experience enhances
decision quality
3. Empowers employees and increases job satisfaction
4. Trains future managers
a well-managed organization develops and maintains a pool of managerial talent
COSTS OF DECENTRALIZATION
1. Leads to decisions that emphasize local goals over global goals
2. Requires costly coordination of decisions
decentralized organizations requires careful coordination of the decisions by managers at
various levels
3. Triggers improper decisions because of the divergence between individual and organizational
goals
managers might pursue their own objectives instead of acting in the organization’s best
interests
4. May lead to an increase in total costs
effort and tasks are often duplicated
top management’s responsibility is to figure out how to maximize the benefits and minimize
the costs associated with decentralization
organizations use monitoring, performance evaluation, and incentive schemes to manage these
costs
Responsibility Centres
each these organizational subunits corresponds to the nature of the decisions made by the
managers of the subunits
COST CENTRES
managers exercise control over costs, but not revenues
minimize the cost of producing a specified level of output or the cost of delivering a specified
level of service
objective of cost centre managers is to improve the efficiency of operations
examples are plant maintenance, data procession, human resources, production and general
administration
REVENUE CENTRES
managers exercise control over revenues
may also be responsible for some expenses, responsible for expenses associated with selling
examples are sales divisions
PROFIT CENTRES
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