DECENTRALIZATION OF DECISION MAKING- OZ AUTOMOTIVE GROUP
Introduction
Steven Smith, CEO of the company made several changes at OZ Automotive Group, including “decentralized decision making authority”. By decentralization of decision making we mean distribution of decision making authority throughout the company, it is also referred as distribution of power. The major reason of bringing about this change was to introduce accountability among employees which will improve the overall performance of the firm. Moreover employees felt more valued with increase in their authority.
Critical Evaluation
Decentralized decision making is effective for such a complex organization and Steven should remain with this new revised system. Since from 1953 onwards the size of the company has increased significantly and it became a complex organization i.e. from a small company to among top 20 players, company is large now and hence decentralized decision making is relevant in this case.
Malone (1997), explained that decentralization comes with three major advantages including
- Increased creativity and motivation among employees
- Different people will work on same thing simultaneously
- Added flexibility improves employee performance.
Employees now feel more informed as information is readily available which can also be translated into improved innovation which finally gives rise to TQM.
Initially centralized decision making was present and Steven’s father used to take all the important decisions. Decentralization was particularly relevant as some authority must be given to dealership managers for critical decisions like hiring, firing, advertising and promotions etc. Three systems were also introduced to ensure accountability. Performance reporting included two types of information i.e. both financial and non financial. Steven further mentioned that with decentralized decision making, he had to give more detailed information regarding performance. Balance scorecard was being used to evaluate performance.
He also came up with annual budgeting process, and he further believed that decentralization will increase accountability at lower staff and costs expenses will also be controlled. Additionally performance based pay system was introduced. The idea was to give authority and at the same time performance standards were established to ensure that everyone in the company is working towards achieving the fundamental mission. Delegating authority makes sense because it improves employee morale (Aghion, Philippe, and Tirole, Jean, 1979). Mintzberg (1979) emphasized that decentralized decision making helps lower level staff to highlight their point of view.
Recommendations
- Steven should continue with decentralized decision making because the size of company has increased significantly hence for quick and better decisions, decentralized decision making makes sense.
- This new strategy will also improve communication among employees.
- Decentralization will be effective, if implemented with proper checks in the organization.
