In the article ‘Is your growth flying blind’ by Baghai, Smit, and Viguerie, they say “A question executives must always ask themselves is whether the benefits of centralization genuinely outweigh the benefits of focus and unambiguous accountability” (2009). I think this is a good question for all groups in Management 300 as it is generally the CEO that has the final say on the amounts of money put into each area. This week we desperately needed to make a profit after being negative for the previous two weeks and therefore we had a goal to cut costs, but should this decision be left to the CEO in which areas need to be cut, or should we all be accountable for our own departments?
A common answer for CEOs is “don’t I employ managers to look after the business units so I can concentrate on the big picture?” We agree that all CEOs need breadth of vision, but they also need a clear view down through the organization which results in them often needing to know the finer details of each department. As I touched on last week our group has been working individually and passing on how much we think we need every week. This week we took a slightly more centralised approach with everybody contributing on ideas to cut costs.
With the help of the CEO, we decided to cut most of our costs in terms of marketing for each product. She felt that we had spent too much money on marketing individual products and that this is one way to try achieve better profits. We cut off several million which, although may have resulted in lower sales and therefore lower profits, we managed to achieve a profit of around $1 million which we were happy with (compared to our previous losses anyway). We also didn’t make a new product this week which also may have contributed.
I think this centralised decision-making helped us as each department thinks they can normally do better if they decide on their own amounts to spend. We had done this throughout the course (always with the help of finance department I might add) but it was still up to us on how much we wanted to spend. It certainly comes down to communication with other departments and the CEO but personally I feel the centralised control works best for this simulation as we aren’t a big group and therefore this allows us to all be on the same page and we can compare easily what areas need improving. I think this will encourage me to push for more centralised control (in terms of cost cutting at least) so that we can continue to increase our profit margin.