TAILIEUCHUNG - Lecture Advanced management accounting - Chapter 21

The main contents of this chapter include all of the following: Major influences on pricing decision, economic profit-maximising models, pricing strategies, strategic pricing of new products, competitive bidding, legal restrictions on pricing, product mix decisions. | Lecture 21: Performance Measurement in Decentralized Organizations Reference: Managerial Accounting 14E, Garrison, Noreen, Bewer Except in very small organizations, top managers must delegate some decisions. For example, the CEO of the Hyatt Hotel chain cannot be expected to decide whether a particular hotel guest at the Hyatt Hotel on Maui should be allowed to check out later than the normal checkout time. Instead, employees at Maui are authorized to make this decision. As in this example, managers in large organizations have to delegate some decisions to those who are at lower levels in the organization. Decentralization in Organizations In a decentralized organization, decision-making authority is spread throughout the organization rather than being confined to a few top executives. As noted above, out of necessity all large organizations are decentralized to some extent. Organizations do differ, however, in the extent to which they are decentralized. In strongly centralized organizations, decision-making authority is reluctantly delegated to lower-level managers who have little freedom to make decisions. In strongly decentralized organizations, even the lowest-level managers are empowered to make as many decisions as possible. Most organizations fall somewhere between these two extremes. Advantages and Disadvantages of Decentralization The major advantages of decentralization include: By delegating day-to-day problem solving to lower-level managers, top management can concentrate on bigger issues, such as overall strategy. Empowering lower-level managers to make decisions puts the decision-making authority in the hands of those who tend to have the most detailed and up-to-date information about day-to-day operations. By eliminating layers of decision making and approvals, organizations can respond more quickly to customers and to changes in the operating environment. The major advantages of decentralization include: Granting decision-making authority helps .

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