SEU Centralized & Decentralized Decision Making Approaches Discussion

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You’ve provided a thorough analysis of the implications of both centralized and decentralized decision-making approaches, as well as the potential use of analytical tools for evaluating company performance. Tell me more about the idea of hybrid decision-making models. In some organizations, a combination of centralized and decentralized decision-making is used. Could you elaborate on how Tiller Components might consider adopting a hybrid approach that leverages the strengths of both centralized and decentralized decision-making to address their specific challenges and objectives?

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Evaluating Decentralized Operations
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Centralized and Decentralized Decision-Making Approaches
One critical decision for Tiller Components’ CEO is whether to use centralized or
decentralized decision-making processes. The suitability of each strategy is determined by the
organization’s specific circumstances and objectives. I will discuss the implications of
centralized and decentralized decision-making, as well as how analytical tools might help Sherry
Smith manage and evaluate performance.
Decentralized Decision-Making:
Decentralized decision-making entails the transfer of decision-making power to
management at the local or regional level. Decentralization is crucial for the management of dayto-day operations, inventories, customer relations, and product creation to cater to regional
demands. The shift to decentralized decision making by Tiller components will have many
benefits. According to Warren and Tayler (2020), decentralized decision making enables teams
or departments to exercise decision-making authority, hence fostering multidirectional
communication. Moreover, the empowerment of regional managers to make decisions that are
more relevant to their respective regions will contribute to innovation and creativity. The
implementation of decentralized decision-making can enhance accountability by holding
regional managers responsible for the success of their respective regions. The successful
execution of strategies can result in increased levels of creativity, faster decision-making, and
enhanced levels of responsibility. Nevertheless, poor management of the decentralized decisionmaking may result in poor performance and conflicts in the process of making decisions.
Therefore, Smith should establish clear policies and procedures pertaining to decision-making, as
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well as establish effective communication channels to promote coordination among various
regions.
Centralized Decision-Making:
Centralized decision-making entails the concentration of authority and decision-making
power among the uppermost levels of the organizational hierarchy. Smith should consider the
centralization of specific responsibilities to provide operational uniformity and oversight. These
functions include financial management, marketing, strategic planning, human resources
management. The implementation of a centralized strategic plan is crucial to effectively
coordinate business objectives across several regions (Warren & Tayler, 2020). Centralization of
financial management is crucial for ensuring efficient and successful administration of resources.
Also, it is crucial to centralize human resources management to maintain uniformity of business
policies and procedures across different geographical locations. Centralization of marketing is
essential to provide consistent and successful presentation of the company’s brand across all
geographical locations. Nevertheless, it could also lead to decreased response times and limited
adaptability in accommodating regional or market-specific fluctuations. The decision-making
process in the company is limited to the top management, thereby excluding employees from
contributing to this process. Consequently, the lack of active participation in the decision-making
process leads to diminished performance, and decreased motivation.
Analytical tools for evaluating company performance:
Analysis tools like as Return on Investment (ROI) and residual revenue can provide
Smith with enhanced insights into the performance of each division and sector. The return on
investment (ROI) metric assesses the profitability of an investment by evaluating the ratio
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between the return on investment and the cost of investment. Residual income is a metric that
quantifies the surplus return generated by an investment, taking into account the deduction of the
capital cost (Bergeron et al., 2019). These techniques can help Smith to identify companies and
segment that exhibit high performance, as well as those that display low performance.
Nevertheless, these methods may not fully capture the comprehensive assessment of the
business’s entire performance. Alternative measures such as liquidity and profitability ratios can
also be employed to evaluate the performance of individual business units. Liquidity measures
assess the capacity of a firm to fulfill its immediate financial obligations, whereas profitability
measures evaluate the company’s profitability in relation to its sales, assets, and capital. These
metrics offer a more holistic representation of the company’s financial performance and aid
Smith in making well-informed decisions.
References
Bergeron, C., Gueyie, J. P., & Sedzro, K. (2019). Earnings multifactor process, residual income
valuation, and long-run risk. Journal of Theoretical Accounting Research, 15(1), 23-43.
Warren, C. S., & Tayler, W. B. (2020). Managerial accounting. Cengage Learning, Inc..