Question

How would you feel about the relative centralization for authority and decision making at headquarters versus local units or subsidiaries if you were a subsidiary manager?

Answer 1

When a company makes drastic changes in its goals, strategy, or scope of operations, it will usually also need a change in organizational structure. However, other, less obvious indications of organizational inefficiency also signal a need for structural changes: conflicts among divisions and subsidiaries over territories or customers, conflicts between overseas units and headquarters staff, complaints regarding overseas customer service, and overlapping responsibilities are some of these warning signals. At persistent signs of ineffective work, a company should analyze its organizational design, systems, and work flow for the possible causes of those problems. The nature and extent of any design changes must reflect the magnitude of the problem. In choosing a new organizational design or modifying an existing structure, managers must establish a system of communication and control that will provide for effective decision making. At such times, managers need to localize decision making and integrate widely dispersed and disparate global operations. Besides determining the behavior of the organization on a macro level (in terms of what the different divisions, subsidiaries, departments, and units are responsible for), the organizational design must determine behavior on a micro level. For example, the organizational design affects the level at which certain types of decisions will be made. Determining how many and what types of decisions can be made and by whom can have a drastic consequences; both the locus and the scope of authority must be carefully considered. This centralization-decentralization variable actually represents a continuum. The level of centralization imposed is a matter of degree. In general, centralized decision making is common for some functions that are organized for the entire corporation, whereas other functions are more appropriately decentralized. Two key issues are the speed with which the decisions have to be made and whether they primarily affect only a certain subsidiary or other parts of the company as well.