otential for conflicting go . Promotes greate ower-level managers. business on the part of more company personnel. quick decision making and strong leadership . Spurs new ideas and creative thinking. situations. . Allows for fast response to market change. . Entails fewer layers of management. Ivantages Primary disadvantages response times by those closest to the . May result in higher-level managers being unaware of ditions because they must seek approval for actions taken by empowered personnel under their S. supervision. encourage responsibility among lower-level . Can lead to inconsistent or conflicting approaches by and rank-and-file employees. different managers and employees. es lower-level managers and rank-and-file . Can impair cross-unit collaboration. from exercising any initiative. Centralized Decision Making: Pros and Cons In a highly centralized organiza- tional structure, top executives retain authority for most strategic and operating decisions and keep a tight rein on business unit heads, department heads, and the managers of key operating units. Comparatively little discretionary authority is granted to frontline supervisors and rank-and-file employees. The command-and-control paradigm of cen- tralized decision making is based on the underlying assumptions that frontline person- nel have neither the time nor the inclination to direct and properly control the work they are performing and that they lack the knowledge and judgment to make wise deci- sions about how best to do it-hence the need for prescribed policies and procedures for a wide range of activities, close supervision, and tight control by top executives. The thesis underlying centralized structures is that strict enforcement of detailed proce- dures backed by rigorous managerial oversight is the most reliable way to keep the daily execution of strategy on track. One advantage of a centralized structure, with tight control by the manager in charge, is that it is easy to know who is accountable when things do not go well. This structure can also reduce the potential for conflicting decisions and actions amongCHAPTER 10 Building an Organization Capable of Good Strategy Execution 319 alized lower-level managers who may have differing perspectives and ideas about how to tackle certain tasks or resolve particular issues. For example, a manager in charge of an engineering department may be more interested in pursuing a new technology than s a marketing manager who doubts that customers will value the technology as highly. Another advantage of a command-and-control structure is that it can facilitate strong leadership from the top in a crisis situation that affects the organization as a whole and can enable a more uniform and swift response. e hands th, the But there are some serious disadvantages as well. Hierarchical command-and- control structures do not encourage responsibility and initiative on the part of lower- be trained level managers and employees. They can make a large organization with a complex structure sluggish in responding to changing market conditions because of the time ectual it takes for the review-and-approval process to run up all the layers of the manage- command- ment bureaucracy. Furthermore, to work well, centralized decision making requires top-level managers to gather and process whatever information is relevant to the deci- sion. When the relevant knowledge resides at lower organizational levels (or is techni- cal, detailed, or hard to express in words), it is difficult and time-consuming to get all nitiative the facts in front of a high-level executive located far from the scene of the action-full understanding of the situation cannot be readily copied from one mind to another. in the Hence, centralized decision making is often impractical-the larger the company and nel. the more scattered its operations, the more that decision-making authority must be delegated to managers closer to the scene of the action. Decentralized Decision Making: Pros and Cons In a highly decentralized organization, decision-making authority is pushed down to the lowest organizational The ultimate goal of decen- level capable of making timely, informed, competent decisions. The objective is to put tralized decision making is ware of to put authority in the hands their adequate decision-making authority in the hands of the people closest to and most of those persons closest to familiar with the situation and train them to weigh all the actors and exercise good and most knowledgeable hes by judgment. At Starbucks, for example, employees are encouraged to exercise initia- about the situation. tive in promoting customer satisfaction-there's the oft-repeated story of a store employee who, when the computerized cash register system went offline, offered free coffee to waiting customers, thereby avoiding customer displeasure and damage to Starbucks's reputation. The case for empowering down-the-line managers and employees to make deci- sions related to daily operations and strategy execution is based on the belief that a organiza- company that draws on the combined intellectual capital of all its employees can out- decisions perform a command-and-control company. " The challenge in a decentralized system nagers of is maintaining adequate control. With decentralized decision making, top manage- frontline ment maintains control by placing limits on the authority granted to company person- n of cen- nel, installing companywide strategic control systems, holding people accountable for e person- their decisions, instituting compensation incentives that reward people for doing their the work Jobs well, and creating a corporate culture where there's strong peer pressure on indi- ise deci- viduals to act responsibly. ocedures Decentralized organizational structures have much to recommend them. Delegating ecutives. authority to subordinate managers and rank-and-file employees encourages them to ed proce- take responsibility and exercise initiative. It shortens organizational response times to the daily market changes and spurs new ideas, creative thinking, innovation, and greater involve- ment on the part of all company personnel. At TIX Companies Inc., parent company nager in of T.J.Maxx, Marshalls, and five other fashion and home decor retail store chains, ell. This buyers are encouraged to be intelligent risk takers in deciding what items to purchase s among for TJX stores-there's the story of a buyer for a seasonal product category who cut herPART 1 Concepts and Techniques for Crafting and Executing Strategy own budget to have dollars allocated to other categories where sales were expected to be stronger. In worker-empowered structures, jobs can be defined more broadly, several tasks can be integrated into a single job, and people can direct their own work. Fewer managers are needed because deciding how to do things becomes part of each per- son's or team's job. Further, today's online communication systems and smartphones make it easy and relatively inexpensive for people at all organizational levels to have direct access to data, other employees, managers, suppliers, and customers. They can access information quickly (via the Internet or company network), readily check with superiors or whomever else as needed, and take responsible action. Typically, there are genuine gains in morale and productivity when people are provided with the tools and information they need to operate in a self-directed way. But decentralization also has some disadvantages. Top managers lose an element of control over what goes on and may thus be unaware of actions being taken by person- nel under their supervision. Such lack of control can be problematic in the event that empowered employees make decisions that conflict with those of others or that serve their unit's interests at the expense of other parts of the company. Moreover, because decentralization gives organizational units the authority to act independently, there is risk of too little collaboration and coordination between different units. Many companies have concluded that the advantages of decentralization out- weigh the disadvantages. Over the past several decades, there's been a decided shift from centralized, hierarchical structures to flatter, more decentralized structures that stress employee empowerment. This shift reflects a strong and growing consensus that authoritarian, hierarchical organizational structures are not well suited to implement- ing and executing strategies in an era when extensive information and instant com- munication are the norm and when a big fraction of the organization's most valuable assets consists of intellectual capital that resides in its employees' capabilities. to decentralize Capturing Cross-Business Strategic Fit in a Decentralized Structure n making and give Diversified companies striving to capture the benefits of synergy between separate any personnel some businesses must beware of giving business unit heads full rein to operate indepen- y in conducting opera- dently. Cross-business strategic fit typically must be captured either by enforcing must be tempered e need to maintain close cross-business collaboration or by centralizing the performance of functions ate control and cross- requiring close coordination at the corporate level." For example, if businesses with ordination. overlapping process and product technologies have their own independent R&D departments-each pursuing its own priorities, projects, and strategic agendas-it's hard for the corporate parent to prevent duplication of effort, capture either econo- mies of scale or economies of scope, or encourage more collaborative R&D efforts. Where cross-business strategic fit with respect to R&D is important, one solution is to centralize the R&D function and have a coordinated corporate R&D effort that serves the interests of both the individual businesses and the company as a whole. Likewise, centralizing the related activities of separate businesses makes sense when there are opportunities to share a common sales force, use common distribution channels, rely on a common field service organization, use common e-commerce systems, and so on. Another structural solution to realizing the benefits of strategic fit is to create business groups consisting of those business units with common strategic-fit opportunities