The Benefits and Costs of Decentralized Decision Making. Centralizing as a Cost-Cutting Approach One of the disadvantages of decentralization discussed in the text is the possibility of increased costs (perhaps because of duplication of effort) that can occur. Some firms have realized this and have centralized certain functions. For example, Pernod Ricard SA (a French beverage company) purchases casks for many of its different products. Initially, casks were purchased separately for each of the brands. However, the company decided to centralize the purchase of casks from a central location in the U.S. The move ...helped the company shave off 2% to 3% of expenses tied to indirect procurement... Other companies that have centralized certain business activities include PayPal, Incorporated and the Royal Bank of Canada. In addition to the savings from centralizing the service function, Many companies also opt to place these hubs offshore in lower-cost countries, which can save 20% to 35%.... However, not all companies believe that centralizing functions is the right choice for their organization. For example, Huntington Ingalls Industries, Incorporated, a military shipbuilding company, has three separate units, each with their own services. Our philosophy is to have clear accountability to each of those sector presidents for their profit and loss, and that includes programmatic and financial performance.... Many companies, even those that choose to centralize, recognize that there are lost opportunities when, for example, finance staff are not located with operating managers. As one manager notes, It's not all positive.... Certainly you get efficiencies, but you also lose connectivity. Finally, there are other risks associated with centralization, especially to locations away from primary company operations. As described in the Business Application, "The Risks of Outsourcing a Service Center," in Chapter 11, when unexpected events (such as the pandemic in 2020) arise, there may be regulatory or logistical issues in maintaining adequate services to the operating units. Required: What best describes the benefits that the companies that chose not to centralize likely hoped to receive by keeping certain staff functions, such as finance, decentralized? Faster response Wiser use of management's time Training, evaluation, and motivation of local managers Better use of local knowledge
The Benefits and Costs of Decentralized Decision Making. Centralizing as a Cost-Cutting Approach One of the disadvantages of decentralization discussed in the text is the possibility of increased costs (perhaps because of duplication of effort) that can occur. Some firms have realized this and have centralized certain functions. For example, Pernod Ricard SA (a French beverage company) purchases casks for many of its different products. Initially, casks were purchased separately for each of the brands. However, the company decided to centralize the purchase of casks from a central location in the U.S. The move ...helped the company shave off 2% to 3% of expenses tied to indirect procurement... Other companies that have centralized certain business activities include PayPal, Incorporated and the Royal Bank of Canada. In addition to the savings from centralizing the service function, Many companies also opt to place these hubs offshore in lower-cost countries, which can save 20% to 35%.... However, not all companies believe that centralizing functions is the right choice for their organization. For example, Huntington Ingalls Industries, Incorporated, a military shipbuilding company, has three separate units, each with their own services. Our philosophy is to have clear accountability to each of those sector presidents for their profit and loss, and that includes programmatic and financial performance.... Many companies, even those that choose to centralize, recognize that there are lost opportunities when, for example, finance staff are not located with operating managers. As one manager notes, It's not all positive.... Certainly you get efficiencies, but you also lose connectivity. Finally, there are other risks associated with centralization, especially to locations away from primary company operations. As described in the Business Application, "The Risks of Outsourcing a Service Center," in Chapter 11, when unexpected events (such as the pandemic in 2020) arise, there may be regulatory or logistical issues in maintaining adequate services to the operating units. Required: What best describes the benefits that the companies that chose not to centralize likely hoped to receive by keeping certain staff functions, such as finance, decentralized? Faster response Wiser use of management's time Training, evaluation, and motivation of local managers Better use of local knowledge
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:The Benefits and Costs of Decentralized Decision Making.
Centralizing as a Cost-Cutting Approach
One of the disadvantages of decentralization discussed in the text is the possibility of increased costs (perhaps because of duplication
of effort) that can occur. Some firms have realized this and have centralized certain functions. For example, Pernod Ricard SA (a French
beverage company) purchases casks for many of its different products. Initially, casks were purchased separately for each of the
brands. However, the company decided to centralize the purchase of casks from a central location in the U.S. The move
...helped the company shave off 2% to 3% of expenses tied to indirect procurement...
Other companies that have centralized certain business activities include PayPal, Incorporated and the Royal Bank of Canada.
In addition to the savings from centralizing the service function,
Many companies also opt to place these hubs offshore in lower-cost countries, which can save 20% to 35%....
However, not all companies believe that centralizing functions is the right choice for their organization. For example, Huntington Ingalls
Industries, Incorporated, a military shipbuilding company, has three separate units, each with their own services.
Our philosophy is to have clear accountability to each of those sector presidents for their profit and loss, and that includes
programmatic and financial performance....
Many companies, even those that choose to centralize, recognize that there are lost opportunities when, for example, finance staff are
not located with operating managers. As one manager notes,
It's not all positive.... Certainly you get efficiencies, but you also lose connectivity.
Finally, there are other risks associated with centralization, especially to locations away from primary company operations. As
described in the Business Application, "The Risks of Outsourcing a Service Center," in Chapter 11, when unexpected events (such as
the pandemic in 2020) arise, there may be regulatory or logistical issues in maintaining adequate services to the operating units.
Required:
What best describes the benefits that the companies that chose not to centralize likely hoped to receive by keeping certain staff
functions, such as finance, decentralized?
Faster response
Wiser use of management's time
Training, evaluation, and motivation of local managers
Better use of local knowledge
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