The following case study derives from a case in your textbook. Consider the case:

RNB is a bank holding company for a statewide group of retail consumer-oriented banks. Investors who believed in a high level of consumer services formed RNB in the early 1960s. The number of banks owned by the holding company expanded rapidly. These banks gained visibility because of their experimentation with innovations, such as freestanding 24-hour automated teller machines, automated funds transfer systems, and other advances in banking services.

RNB's earnings performance has been better than most other banks in the state. The founders organized RNB and continue to operate it on a highly decentralized basis. As the number of banks owned has increased, RNB's executive management has delegated more responsibility and authority to individual bank presidents, who are considered to be representatives of executive management. Although certain aspects of each bank's operation standardized, such as procedures for loan applications and salary rates, bank presidents have significant autonomy in determining how each bank will operate.

The decentralization has led each bank to develop individual marketing campaigns. Some of them have introduced unique packaged accounts that include a combination of banking services. However, they sometimes fail to notify the executive office and other banks in the group of these campaigns. One result has been interbank competition for customers where the market overlaps. The corporate marketing officer has also recently begun a statewide advertising campaign that conflicted with some of the individual banks advertising. Consequently, customers and tellers have occasionally experienced both confusion and frustration, particularly when the customers attempt to receive services at a bank other than their home bank.

RNB's executive management worries that earnings will decline for the first time in its history. The decline appears to be attributable to reduced customer satisfaction and higher operating costs. The competition between the banks and the state is keen. Bank location and consistent high-quality customer service are important. RNB's 18 banks are well located, and the three new bank acquisitions planned for next year are in prime locations. The increase in operating costs appears to be directly related to the individual banks aggressive marketing efforts and new programs. Specifically, expenditures increased for advertising and for the special marketing materials and added personnel related to the packaged accounts.

For the past three months, RNB's executive management has been meeting with individual bank presidents to review RNB's recent performance and seek ways to improve it. One recommendation that appeals to executive management is to make the organization structure more centralized. The specific proposal calls for reducing individual bank autonomy and creating a centralized individual bank management committee of all bank presidents to be chaired a newly created position, Vice President of Bank Operations. Setting the individual banks policies would be by consensus of the committee to conform to overall RNB plans.

• Discuss the advantages and disadvantages of a decentralized organizational structure.
• Explain, based on your experience, which type of structure, centralized or decentralized, you would recommend for companies in your industry and why.