Benefits and costs of decentralization. Jackson Markets, a chain of traditional

Question

Benefits and costs of decentralization. Jackson Markets, a chain of traditional supermarkets.s interested in gaining access to the organic and health food retail market by acquiring a regional company in that sector. Jackson intends to operate the newly acquired stores independently from its supermarkets One of the prospects is Health Source, a chain of 20 stores in the mid Atlantic region Buying for nil 20 stores is done by the company's central office. Store managers must follow strict guidelines for all aspects of store management in an attempt to maintain consistency among stores. Store managers are evaluated on the basis of achieving profit goals developed by the central office. The other prospect is Harvest Moon, a chain of 30 stores in the Northeast Harvest Moon managers are given significant flexibility in product offerings, allowing them to negotiate purchases with local organic farmers. Store managers are rewarded for exceeding self-developed return-on-mvestment goals with company stock options. Some managers have become significant shareholders in the company and have even decided on their own to open additional store locations to improve market penetration. However, the increased autonomy has led to competition and price cutting among Harvest Moon stores within the same geographic market, resulting in lower margins. 1.Would you describe Health Source as having a centralized or a decentralized structure? Explain 2.Would you describe Harvest Moon as having a centralized or a decentralized structure? Discuss some of the benefits and costs of that type of structure. 3.Would stores in each chain be considered cost centers, revenue centers, profit centers, or investment centers? How does that the into the evaluation of store managers? 4.Assume that Jackson chooses to acquire Harvest Moon. What steps can Jackson take to improve goal congruence between store managers and the larger company?

Explanation / Answer

1.

In centralized organizational structures, one individual (usually owner) will take all business decisions and provide direction for the company. Generally, Small businesses use this structure because only owner is alone responsible for both risk and rewards.

In contrast, decentralized organizational structures often have many individuals who responsible for making business decisions and to run the business smooth. The main difference between centralization and de centralization is Decentralized organizations rely on a team environment at different levels in the business but centralized organization structure go forward by the decisions of one individual (i.e., owner). Individuals at each level in the business may have some autonomy to make business decisions.

As mentioned in the above information, store managers should act according to the guidelines of central office but cannot take any decisions at their own. Therefore, it is centralized organizational structure.

2.

HM is having a decentralized structure because managers of this store can negotiate purchases with local organic farmers. These managers can take own decisions and can open even new stores to penetrate into markets. Therefore, these mangers can take their own decisions without waiting for suggestions from central office. Therefore, HM is working under decentralization organizational structure.

3.

Both HS and HM chains can be considered as cost centres, revenue centres and profit centres but only HM can also be considered as investments centre as it can open new stores with investment.

4.

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