Question

“In a decentralized environment, when managers of subsidiaries act in their individual best interest, the organization as a whole may suffer, resulting in suboptimization”. Discuss

Answer 1

In a decentralized environment, the CEO sets tone for the running of the organizations and provides some decision making guidelines , but the actual decision for the day-to-day operations are made by the managers at the various levels of the organization.

In a centralized environment, the major decisions are made at the top by the CEO and then are carried out by everyone below the CEO.

Decentralized environment utilize individuals with a variety of expertise and knowledge for running various business operations . A broad based management team helps to ensure the company has knowledgeable directors or managers to handle various types of business situations.

Decentralized organizations can struggle with multiple individuals having different opinions on a particular business decision. As such, these businesses can face difficulties trying to get everyone on the same page when making decisions.

In the given case, In the given organization it follow decentralized environment due to which CEO sets tone for the running of the organization and provides some guidelines but the actual decision making is on managers hand . so when managers of subsidiaries forget the whole organization goal and act in their individual best interest it will lead to suboptimization.

Suboptimization is a reduced level of output that results from an inefficient or ineffective process or system. Suboptimization can also arise from a focus on optimizing a unit of a business rather than the results of the entire business. For example, a company's controller locks down the office supplies cabinet in order to eliminate the theft of supplies. However, it takes so long for employees to have the cabinet unlocked whenever they need supplies that the overall effect on the firm is that employee resources are being wasted.

Conclusion : From the above explanation we understand that there should be a balance between centralized and decentralized environment so there is less chance of suboptimization and organization goal can be achieved.