( Last year MST Sample Test ) Please explain in simple plain language Question 3
ID: 2328418 • Letter: #
Question
( Last year MST Sample Test ) Please explain in simple plain language
Question 3 (word limit: 700 words), Mega Corporation is a private UK audio company specializing in design and production of a wide range of both consumer and high fidelity products. Founded 50 years ago by Aiden Henry, the firm now employs 250 workers and has annual sales of over S20 million. Aiden operates the firm in a highly centralized way, and retains control over all changes in operations. Although Aiden Henry is now 70 years old, he has no apparent management successor, and has always hand-picked his heads and staff personnel. He has been generous to those who worked for him, paying substantial bonuses each year to the employees based on his personal evaluation of each worker. Just six weeks ago, a heart attack and poor health outcomes convinced Aiden to consider retirement, and he decided to sell the firm to his employees department Required: Assuming that the new management wants to operate as a decentralized firm, what major management problems do you foresee in the transition from sole owner to employee ownership? (8 marks)Explanation / Answer
As the question states, Mega Corporation is a 50 year old UK based company dealing in consumer and high fidelity products operated by Mr. Aiden Henry in a highly centralized way itself suggests that the firm is currently operating under centralized management where all the powers and control on business operations and management is concentrated under the single authority of Mr. Aiden Henry and is not being delegated or decentralized into the organization. Centralized mode of management is easier to control and grow. In it there is uniformity in operations and procedures, the decision making process is much more quick and efficient. The Firm now is proposed to be handed over to employees where the employees would operate the company in a decentralized manner. The Organization would be divided into divisions by the employees. In case the firm is being decentralized it would have its own advantages along with the disadvantages. In this scenario the firm is likely to face some of the following issues arising on decentralization of organization:
Introductory Stage: Introduction of decentralization may get difficult as there would be lot of confusion regarding the administration and delegation in the early stage. Administration is difficult on early stage. Firm may face diverse situations and low profits in the introduction stage of decentralized mode of management.
Slow Decision Making: The biggest demerit of decentralization is that the overall control is being lost on the decision making. Each division would take its own time for decision making on the day to day activities leading to loss of production and profit. Decision making process should be rapid as per the changing situation and market scenarios to grab the upcoming opportunities, in this management correct decisions as per changing situations may not be possible. Overall Decision making process gets delayed in decentralized mode of management.
Competition: In a Decentralized management the divisions would have the autonomy over the operating and management decisions of the organization but due to this the divisions may start competing with each other and desolate the organization on a whole. The goals of the each division might not correlate with the overall organization targets. They might start working for their own profit motive and set their own profit targets ignoring the organization’s welfare which might result in loss of reputation and gains. This way competitive environment among the divisions might affect the overall profitability of the organization in decentralized mode of management.
Expensive: Decentralization may result into setting up of new divisions and infrastructure. Each division would have its own administration expenses on account of its personnel. Highly paid personnel may be appointed to make the division profit oriented. There is a possibility that the firm may face losses for few months or years, as the firm was controlled by Aiden before who had an exceptional experience of 50 years and the employees do not have such remarkable expertise to handpicked the department heads and staff personnel effectively. Thus decentralized mode of management may prove to be expensive to the organization.
No Uniformity: The Organization policies and procedures are not uniform in decentralized management. All the division work in different procedures and follow their own practice for their day to day operations leading to lack of uniformity. Same Operations might be performed in a different manner in different divisions of same organization.
Lack of Harmony: The harmonies among the divisions are minimal. The Level of coordination required for the successful operation of the organization is absent in decentralized form of management. There is inconsistency among the operations and administrative procedures. There is a clash among the division due to their own profit motives.
Strikes: The Company may face labour strikes on implementation of decentralization. As the top management might not have the full knowledge about the local operations and the company’s strategy. Division heads might have to know more about the management tactics, organization strategy and labour laws. As labours are the whole and sole of the company and the success of the organization without them is impossible to achieve. To minimize strikes and labour issues the company has to implement motivation lectures and good interactive sessions among lower and middle management.
This way the Decentralized mode of management have its own demerits along with the its merits.
As the question states, Mega Corporation is a 50 year old UK based company dealing in consumer and high fidelity products operated by Mr. Aiden Henry in a highly centralized way itself suggests that the firm is currently operating under centralized management where all the powers and control on business operations and management is concentrated under the single authority of Mr. Aiden Henry and is not being delegated or decentralized into the organization. Centralized mode of management is easier to control and grow. In it there is uniformity in operations and procedures, the decision making process is much more quick and efficient. The Firm now is proposed to be handed over to employees where the employees would operate the company in a decentralized manner. The Organization would be divided into divisions by the employees. In case the firm is being decentralized it would have its own advantages along with the disadvantages. In this scenario the firm is likely to face some of the following issues arising on decentralization of organization:
This way the Decentralized mode of management have its own demerits along with the its merits.
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