Explain how centralized and decentralized companies differ. What are the advantages and disadvantages of each?
Introduction:
Centralization is a process in which the control of activity lies in the hand of single authority.
Decentralization is a process in which the authority is delegated to other levels of the organization.
To state:
The difference between centralization and decentralization along with their advantages and disadvantages.
Answer to Problem 1Q
Centralization and decentralization are two antitheses of one another. In centralization, the concentration of control lies with single authority, i.e., higher level and in decentralization, the control is disseminated to lower levels of the organization.
Explanation of Solution
In centralization organization, the decision-making power lies with the highest level of authority in the organization. All the strategic and operational level decision are taken by high-level executives.
The advantages of centralization:
- A stringent control can be exercised over the organization.
- It helps in implementing the decisions quickly.
The disadvantages of centralization:
- All the burden lies on the manager.
- It leads to misuse of power.
In decentralization organization, the decision-making power is spread throughout the organization. The authority and responsibility are given to the lower level managers to manage their individual units.
The advantages of decentralization:
- It helps in reducing the burden on top executives.
- It promotes motivation among the lower levels of management.
The disadvantages of decentralization:
- It leads to overlapping of activities as managers in multiple areas perform the same function.
- Costlier and riskier decisions might be taken without keeping in loop the higher level of management.
Want to see more full solutions like this?
Chapter 10 Solutions
Managerial Accounting
- Discuss the difference between centralized and decentralized organizations. Does the size of the organization influence whether the organization has a centralized or decentralized structure? Explain.arrow_forwardWhich of the following does not describe a management control system? A. establishes a companys strategic goals B. implements a companys strategic goals C. monitors a companys strategic goals D. a system that only measures profitabilityarrow_forwardWhat does it mean to obtain a competitive advantage? What role does the cost management system play in helping to achieve this goal?arrow_forward
- Managers in decentralized organizations make decisions relating to all of the following except_______. A. the companys stock price B. equipment purchases C. personnel D. prices to charge customersarrow_forwardWhy are companies divided into departments for the purpose of management control? Is it possible to evaluate a cost center's profitability? Explain.arrow_forwardDefine decentralization structure in business.arrow_forward
- What is the aim of dividing businesses into departments for the purpose of controlling management? How does one go about determining the profitability of a cost center? Explain.arrow_forwardWhat challenges does functional diversity represent for the business environment?arrow_forwardThe management approach requires a firm to define segments on the basis of its internal organizational structure. What are the advantages in defining segments on this basis?arrow_forward
- What problems do companies face in designing and managing their channels?arrow_forwardDifferentiate between centralized and decentralized operations. Also, differentiate between a profit center and an investment center.arrow_forwardWhy companies tend to form teams in handling many and assignment in the organizations?arrow_forward
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax CollegeFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning