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

Question

Benefits and costs of decentralization. Jackson Markets, a chain of traditional supermarkets is interested in gaining access to the organic and health food retail market by acquiring a regional company is 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 all 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-investment goals wth 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. Would you describe Health Source as having a centralized or a decentralized structure? Explain 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. Would stores in ea ch chain be considered cost centers, revenue centers, profit centers, or investmententers ? How does that tie into the evaluation of store managers? 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) It is centralised operations as the acquistion of store was done centrally and also the profit goals are defined centrally. There is a consistency of practices followed across all the 20 locations. 2) Harvest monsoon is decentralised as the manager has the purchasing power and can acquire the products from the local market. The goals are defined by the managers themselves, so they have autonomy. 3) Stores in each chain would be considered as profit center as it’s the stores that would generate profit for the company as a whole. 4) Jackson can realign the goals of the managers and can give more autonomy to the managers , the operations could be decentralised to an extent to managers can purchase the raw material from the local market.

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