Organizational Decentralization

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I. Organizational Decentralization Rationale of Decentralization The term decentralization is often used in business environments and can be defined as the organizational severance and division of power, capital, and technical procedures and control into multiple units of the business.1 Decentralized corporations make it possible for managers to control without ownership. 4 In decentralized organizations, the breakdown is that the president of each unit of a business is on his or her own management-wise. The president of each unit is provided a board of directors and a financial budget from the parent company, but is allowed to run the company with no hindrance as long as financial goals are met. 2 Decentralization is seen as an issue…show more content…
And even though each unit is run independently, headquarters must provide an overall main financial plan for units to follow. The financial plan should include guidelines on such things as suitable profit margin and return on investment obligations. It is also up to headquarters to maintain adequate watch over each unit to ensure that they are performing freely within reasonability. It is important that unit action is free of detriment to the company's reputation as a whole. 2 There should also be a certain degree of expert functions performed by a competent staff. It would benefit a company more to have organizational units that focused on specific functions, instead of having each units' employees and equipment perform multiple tasks. The reason is due to cost; it can become expensive to re-equip a machine to shift from performing one function to performing another.1 Measuring Performance In order for a decentralized organization to be successful, it must be accommodating and led by proposals, values, and objectives that are not only steady but are relevant to long-term practice. 1 According to a study done by McKinsey and Co. a successful decentralized company is simple in form and low on staff. It has continued contact with past clients and emphasizes skills and abilities that are best known. When emphasizing its best skills, a successful unit focuses on one or
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