Centralized Control or Decentralized DiversityPrepared by: Group 11

The Ever Confusing Question!The Ever Confusing Question!

• To decide the right balance of power between the company’s central headquarters and its constituents parts is a major challenge.

• The most contentious issues of them all: Compensation & Benefits.

• Companies cannot leave the compensation to the local constituents completely and neither can it completely control the same centrally.

• A manager or a secretary is one business, in all fairness, cannot be paid way more than the their equivalent from another region.

• Throughout 1980’s, the idea was to completely de-centralize the power and give independent control to units in all sectors from manufacturing, engineering or even public sector.

• To find the right mix centralization and decentralization in pay and benefits, a research model suggests three variables that effect the company’s integration level:

– The strategy & goals of the organization i.e. Business Relatedness, Competitive Edge, Growth Methods, Performance Emphasis

– The internal structure i.e. Degree of Centralization, Size of Head Office, Diversity in Locations, Management Style

– The approach of Human Resources Management i.e. Types of Employee, Reward Philosophy, Industrial Relation Policies.

• Highly diverse companies tend to have a more hands off approach and have a more decentralized approach as there is less interaction among divisions.

• Less diverse companies have a more hands on approach given high interaction among various units and hence follow a more centralized approach.

Centralization or Decentralization – The StrategyCentralization or Decentralization – The Strategy

• Research concludes the following:– No position on the extent of centralization/decentralization is universally right

or wrong, however, any mismatch between them can be catastrophic.– The relationship among these variables is not stable over time and hence the

strategy to approach the centralization/decentralization thing should be reviewed time and again.

– The appropriate position for most organization in this centralization/decentralization scale lies somewhere in the middle.

• In addition, a different position on the centralization/decentralization scale might be appropriate in different situations.

• Also, a different degree of cross divisional consistency may be appropriate for different types of employees.

• In conclusion, the company should systematically design compensation practices to fit the organization goals keeping the mind appropriate consistency of centralization & decentralization.

Compensation & Strategy – The Right MatchCompensation & Strategy – The Right Match

Thank You!