1. Describe two major ways in which a company can grow.

Give examples to illustrate the two

ways of growing.
 
A business can develop by organic growth or inorganic growth

a. Organic Growth:
Organic growth in business refers to a company expanding its business through the
use of its own resources and assets. Growing organically means a company expands
without the use of mergers and acquisitions or other takeovers. An emphasis on
organic growth is valued by many executives and investors since it shows a long-term,
solid commitment to building the business. Organic growth can also be negative,
meaning the company's business is actually contracting. Investors look at organic
growth numbers to see if a company is increasing sales and revenues and if those
increases are sustainable over the long term.
Significance
Organic growth shows how well management of a company is utilizing
internal resources to increase sales and output. Mergers, acquisitions and
takeovers can provide an artificial boost to a company's sales and revenue
figures; this can cloud the picture of how the company is managing its
resources. By focusing on the organic growth of the company, executives
and investors can see exactly how the company is meeting its goals
through its own internal means.
Workforce Issues
Many executives prefer to grow their companies organically due to the
complexity and organizational issues that result from mergers and
acquisitions. One major issue is the effect of merging two company's
workforces, which can often result in culture clashes and morale issues.
Employees can resist changes in the chain of command or workflow
procedures, and high turnover can result. Organic growth allows the
company to avoid these workforce issues entirely.
Strategic Concerns
Organic growth allows company executives to set and achieve corporate
goals in whichever manner they choose. Combining two companies often
comes with the burden of sharing management responsibilities with
executives from both firms; this can have an impact on the entire strategic
outlook of the new company. A merger pursued as a way to achieve
specific goals can wind up changing those goals completely. Executives
stay in complete control of the company, when it is growing organically,
 and can steer the business in a specific direction to achieve their
objectives.
Significance to Investors
Investors love organic growth, not only because it shows management's
effective use of resources and commitment to the business, but also
because it makes analyzing the company a lot easier. When looking at a
company's financials, it is important to note if sales and revenue figures
have been inflated due to recent acquisitions. Often, investors will strip
out all non-organic growth from a company's financials, showing the true
growth potential of the core company. The less a company relies on
mergers and acquisitions, the less work an analyst has to do to get to this
core figure.
Disadvantages
Growing a company organically takes an enormous commitment of
resources and time. Equipment must be acquired, personnel hired and
trained and sales conduits established. Often, companies utilize mergers
and takeovers to acquire a fully developed business unit and avoid
reinventing the wheel. Organic growth also puts all of the business risk
squarely on the core company, as opposed to a company that acquires a
new unit, sharing the risk between the core company and the new
addition.
Organic growth strategies are built on four main pillars: revenue, headcount, PR, and
quality.
1. Revenue
Revenue is the lifeblood of any business. Without dollars flowing in,
it is impossible to pay employees, suppliers and vendors. Businesses
that are growing organically seek to grow revenue volume in the
most efficient manner possible. Revenue growth eventually leads to
profit growth, which is the end goal of organic growth strategies.
Growing revenue allows for the effective functioning of the other
three pillars. Without cash coming into a business, employees
cannot be hired and advertising budgets become strapped.
2. Headcount
As revenue grows, companies can afford to hire more employees.
Headcount is critical for any growing business. For customer service,
sales and marketing and production departments to function
efficiently, they must be properly staffed.
A good HR department is critical to the success of a growing
company. Quality is more important than quantity for company
headcount, as employees are the biggest asset of any corporation.
3. PR
Public relations and advertising allow companies to get the word
out about their products and services. Good PR drives traffic to
company websites and gets perspective customers attention. Good
PR strategies also allow for revenue growth to keep those properly
staffed departments busy.
Bad PR can be more damaging to a company than good PR can be
effective. Word of mouth, social media and traditional PR avenues
 all must be used and monitored to ensure positive word-of-mouth
advertising and branding.
4. Quality
To successfully grow any enterprise, there needs to be a quality
product. Organic growth relies on repeat business from satisfied
customers. Customers will rarely buy a product a second time if the
first experience isn't top notch. Quality control and customer
service are critical to gaining a sufficient sales volume to grow a
company.
Popular Companies Using Organic Growth Strategies
Many well-known, public corporations use organic growth strategies. Best Buy,
Outback Steakhouse and Tiffany and Company are just a few major brand
names that grow every year through organic growth strategies.
Best Buy's main competitor, Circuit City, went out of business in 2009. Outback
Steakhouse is the best known steakhouse chain in the United States. Tiffany and
Company is the standard in diamonds and jewelry.
 
New EU legislation also provides an opportunity for Davis Service Group. For example,
the need for protective uniforms for industrial workers provides plenty of new
contract work for textile services.
 
b. Inorganic Growth
A growth in the operations of a business that arises from mergers or takeovers, rather
than an increase in the companies own business activity. Firms that choose to grow
inorganically can gain access to new markets and fresh ideas that become available
through successful mergers and acquisitions.
Inorganic growth is seen often as a faster way for a company to grow when compared
with organic growth. In many industries, such as technology, growth is often
accelerated through increased innovation, and one way for firms to compete is to
align themselves with those companies that are developing the innovative technology.
1. Merger
Two firms join by agreement. Mergers make it possible to share the
resources of the two organizations and focus on the best activities
of each
a. Horizontal integration refers to a situation where two
firms at the same stage of production join.
If Sunlight joined another firm hiring sheets to hotels
and hospitals in the UK, this would be an example of
horizontal integration.
 
  
b. Vertical Integration joins businesses at different stages
of production.
For example, Sunlight could join with a company that
makes hotel sheets. This shows backward vertical
integration where Sunlight benefits from controlling the
supply of the sheets it uses. This ensures quality control
and on-time delivery.
A business could also consider forward vertical
integration. For example, it joins with a distribution
company to economise on its transport costs. This could
benefit Sunlight by showing its environmental
responsibility.

 
The advantage of vertical integration is that it gives the
business greater control over the supply chain of its
product or service. The Sunlight business was partially
vertically integrated by including the cleaning and
delivery processes in its service.
 
2. Takeover
One company buys at least 51% of the shares of another company.
This enables the company with the larger number of shares to have
control over the other business and select which activities to keep.
There are different types of Takeovers as below:
a. Friendly takeovers
Before a bidder makes an offer for another company, it
usually first informs the company's board of directors. If
the board feels that accepting the offer serves
 shareholders better than rejecting it, it recommends the
offer be accepted by the shareholders.
In a private company, because the shareholders and the
board are usually the same people or closely connected
with one another, private acquisitions are usually
friendly. If the shareholders agree to sell the company,
then the board is usually of the same mind or
sufficiently under the orders of the equity shareholders
to cooperate with the bidder. This point is not relevant
to the UK concept of takeovers, which always involve
the acquisition of a public company.
b. Hostile takeovers
A hostile takeover allows a suitor to take over a target
company's management unwilling to agree to a merger
or takeover. A takeover is considered "hostile" if the
target company's board rejects the offer, but the bidder
continues to pursue it, or the bidder makes the offer
without informing the target company's board
beforehand.
A hostile takeover can be conducted in several ways. A
tender offer can be made where the acquiring company
makes a public offer at a fixed price above the current
market price. Tender offers in the United States are
regulated by the Williams Act. An acquiring company
can also engage in a proxy fight, whereby it tries to
persuade enough shareholders, usually a simple
majority, to replace the management with a new one
which will approve the takeover. Another method
involves quietly purchasing enough stock on the open
market, known as a creeping tender offer, to effect a
change in management. In all of these ways,
management resists the acquisition but it is carried out
anyway.
The main consequence of a bid being considered hostile
is practical rather than legal. If the board of the target
cooperates, the bidder can conduct extensive due
diligence into the affairs of the target company. It can
find out exactly what it is taking on before it makes a
commitment. But a hostile bidder knows only publicly-
available information about the target, and so takes a
greater risk. Also, banks are less willing to back hostile
bids with the loans that are usually needed to finance
the takeover. However, some investors may proceed
with hostile takeovers because they are aware of
mismanagement by the board and are trying to force
the issue into public and potentially legal scrutiny.
c. Reverse takeovers
 A reverse takeover is a type of takeover where a private
company acquires a public company. This is usually
done at the instigation of the larger, private company,
the purpose being for the private company to
effectively float itself while avoiding some of the
expense and time involved in a conventional IPO.
However, under AIM rules, a reverse take-over is an
acquisition or acquisitions in a twelve month period
which for an AIM company would:
 exceed 100% in any of the class tests; or
 result in a fundamental change in its business,
board or voting control; or
 in the case of an investing company, depart
substantially from the investing strategy stated in
its admission document or, where no admission
document was produced on admission, depart
substantially from the investing strategy stated in
its pre-admission announcement or, depart
substantially from the investing strategy.
An individual or organization-sometimes known as
corporate raider-can purchase a large fraction of the
company's stock and in doing so get enough votes to
replace the board of directors and the CEO. With a new
superior management team, the stock is a much more
attractive investment, which would likely result in a
price rise and a profit for the corporate raider and the
other shareholders.
d. Backflip takeovers
A backflip takeover is any sort of takeover in which the
acquiring company turns itself into a subsidiary of the
purchased company. This type of a takeover rarely
occurs.
Pros and Cons of takeover
Pros:
 Increase in sales/revenues (e.g. Procter & Gamble takeover of
Gillette)
 Venture into new businesses and markets
 Profitability of target company
 Increase market share
 Decrease competition (from the perspective of the acquiring
company)
 Reduction of overcapacity in the industry
 Enlarge brand portfolio (e.g. L'Oral's takeover of Bodyshop)
 Increase in economies of scale
  Increased efficiency as a result of corporate
synergies/redundancies (jobs with overlapping responsibilities
can be eliminated, decreasing operating costs)
Cons:
 
 Goodwill, often paid in excess for the acquisition.
 Reduced competition and choice for consumers in oligopoly
markets. (Bad for consumers, although this is good for the
companies involved in the takeover)
 Likelihood of job cuts.
 Cultural integration/conflict with new management
 Hidden liabilities of target entity.
 The monetary cost to the company.
 Lack of motivation for employees in the company being
bought up.
 Takeovers also tend to substitute debt for equity. In a sense,
government tax policy of allowing for deduction of interest
expenses but not of dividends, has essentially provided a
substantial subsidy to takeovers. It can punish more
conservative or prudent management that don't allow their
companies to leverage themselves into a high risk position.
High leverage will lead to high profits if circumstances go well,
but can lead to catastrophic failure if circumstances do not go
favorably. This can create substantial negative externalities
for governments, employees, suppliers and other
stakeholders.
 
2. Businesses grow when they have the resources to expand and opportunities exist for growth.
Explain how the acquisition of Berendsen provided such a good opportunity for the Davis Service
Group.
 
Acquisition is a type of Inorganic growth. Berendsen's acquisition is like Horizontal integration as
Sunlight and Berendsen are specialist companies at the same stage of production. It was possible
to pool the knowledge and expertise of the two companies so that both benefited.
 
Berendsen was an ideal acquisition because, like Sunlight, it was the market leader in providing
textile services in its geographical area like Denmark, Sweden, Norway, Austria, the Netherlands,
Poland and Germany.
Taking over Berendsen, rather than merging with it, gave Davis Service Group the control to put
the best systems in place at Berendsen. It was able to:
o reduce operating costs, for example, closing down some locations where Berendsen had
two outlets operating in the same area
o strengthen the management of the two companies
o save fixed costs, by cutting out the central headquarters of the company.
This put Berendsen in a stronger position to improve its sales and profits.
 
 
3. What aspects of European Union markets have particularly encouraged:
o horizontal growth of the Davis Service Group?
o organic as opposed to inorganic growth?
 
Berendsen's acquisition is like Horizontal integration as Sunlight and Berendsen are specialist
companies at the same stage of production. It was possible to pool the knowledge and expertise
of the two companies so that both benefited.
 
The factors that might have been barriers to international growth were easy to overcome in this
acquisition:
o Language: Berendsen’s business operates across several European countries and uses
English as a common language.
o Cultural differences: buying patterns and the culture in the areas where Berendsen operates
are similar to the UK.
o Currency: the countries in which Berensden operates already used the Euro or had
currencies linked to the Euro.
 
Organic growth is when a company increases the turnover of the existing business. Much of the
growth of Sunlight and Berendsen involves organic growth.
As part of the Group, these companies have increased their customers in existing locations, as well
as in other areas of the rapidly developing EU market. Trade and living standards in the EU are
growing fast. Large global companies are opening up new sites and they require textile services
from Sunlight and Berendsen. Countries like Poland, which joined the EU in 2003, are experiencing
growth in key sectors such as manufacturing so more uniforms are needed. New EU legislation
also provides an opportunity for Davis Service Group. For example, the need for protective
uniforms for industrial workers provides plenty of new contract work for textile services.
Organic growth - building on existing resources - is sometimes the only way to grow. For example,
in many Eastern European countries that were part of the former Soviet Union, there are few
companies suitable to take over. Most businesses in these countries had previously been
government-owned. They had poor equipment and/or had no need to rent out textiles.
 
The EU currently has 27 member countries. It is a huge potential market. Any business in the
European Union has over 500 million customers
Goods and services can flow freely in the single European market. This means it is much easier to
do business in the EU. Trade within this area has risen by 30% since 1992. The development of fast
transport links, for example, the Channel Tunnel, high-speed trains and cheaper air links, means
people can travel to and across Europe more easily. The Internet and email enable companies to
communicate instantly. British firms locating factories and offices in the EU are able to benefit
from a skilled labour force. Within Europe, most member countries use a common currency – the
Euro. This makes it easy to trade within this market place.
 
 
 
4. If the company were to expand into new areas of the globe, where would you recommend and
why? What factors might encourage or discourage this choice?
 
 If the company were to expand into new markets, the policy would remain one of recruiting the
appropriate native speakers. With this
staffing policy the company has to search widely in the UK to get replacements.
 
Encouraging Factor
i. Davis group can go to developing region like Eastern Europe and South East Asia,
ii. Davis Group can get the advantage of European Union and can tap the Eastern Europe
markets,
iii. South East Asia is most emerging markets of the world. Davis can establish itself as
there are very few player in this industry in South East Asia.
iv. Lucrative U.S markets, NAFTA can play a major role in encouraging factor.
Discourage Factors :-
i. Entry barriers because of government policies.
ii. consumer perception, (in-predictable)
iii. Threat of local players (un-organized)
iv. Established US local player
 
 
 
1. Using examples from the case study and other sources, explain what a conglomerate is and why it
chooses to be one.
 
Conglomerate is a corporation consisting of several companies in different businesses. Such a structure
allows for diversification of business risks, but the lack of focus can make managing the diverse
businesses more difficult.
It can also be called as a corporation that is made up of a number of different, seemingly unrelated
businesses. In a conglomerate, one company owns a controlling stake in a number of smaller companies,
which conduct business separately. Each of a conglomerate's subsidiary businesses runs independently
of the other business divisions, but the subsidiaries' management reports to senior management at the
parent company.
The largest conglomerates diversify business risk by participating in a number of different markets,
although some conglomerates elect to participate in a single industry - for example, mining.
These are the two philosophies guiding many conglomerates:
1. By participating in a number of unrelated businesses, the parent corporation is able to reduce
costs by using fewer resources.
2. By diversifying business interests, the risks inherent in operating in a single market are
mitigated.
 
Advantages
1. Diversification results in a reduction of investment risk. A downturn suffered by one subsidiary,
for instance, can be counterbalanced by stability, or even expansion, in another division. In other
words, if Berkshire Hathaway's construction materials business has a bad year, the loss might be
offset by a good year in its insurance business. This advantage is enhanced by the fact that the
business cycle affects industries in different ways. Financial Conglomerates have very different
compliance requirements from insurance or reinsurance solo entities or groups. There are very
important opportunities that can be exploited, to increase shareholder value.
2. A conglomerate creates an internal capital market if the external one is not developed enough.
Through the internal market, different parts of conglomerate allocate capital more effectively.
 3. A conglomerate can show earnings growth, by acquiring companies whose shares are more
discounted than its own. In fact, Teledyne, GE, and Berkshire Hathaway have delivered high
earnings growth for a time.
Disadvantages
1. Synergies are illusory.
2. The extra layers of management increase costs.
3. Accounting disclosure is less useful information, many numbers are disclosed grouped, rather
than separately for each business. The complexity of a conglomerate's accounts make them
harder for managers, investors and regulators to analyze, and makes it easier for management to
hide things.
4. Conglomerates can trade at a discount to the overall individual value of their businesses
because investors can achieve diversification on their own simply by purchasing multiple stocks.
The whole is often worth less than the sum of its parts.
5. Culture clashes can destroy value.
6. Inertia prevents development of innovation.
7. Lack of focus, and inability to manage unrelated businesses equally well.
 
 
 
 
2. Productivity can be calculated as the amount that each employee generates. Using the figures in the
third paragraph, calculate the productivity of Davis employees.
 
3. Objectives of businesses vary from one to another. Give 3 different objectives that businesses may
have.
 
Business Objectives
Objectives give the business a clearly defined target. Plans can then be made to achieve these targets.
This can motivate the employees. It also enables the business to measure the progress towards to its
stated aims.
 
The most effective business objectives meet the following criteria:
 S – Specific – objectives are aimed at what the business does, e.g. a hotel might have an
objective of filling 60% of its beds a night during October, an objective specific to that business.
 M - Measurable – the business can put a value to the objective, e.g. €10,000 in sales in the next
half year of trading.
 A - Agreed - by all those concerned in trying to achieve the objective.
 R - Realistic – the objective should be challenging, but it should also be able to be achieved by
the resources available.
 T- Time specific – they have a time limit of when the objective should be achieved, e.g. by the
end of the year.
 
The main objectives that a business might have are:
 Survival – a short term objective, probably for small business just starting out, or when a new
firm enters the market or at a time of crisis.
 Profit maximization – try to make the most profit possible – most like to be the aim of the
owners and shareholders.
  Profit satisficing – try to make enough profit to keep the owners comfortable – probably the aim
of smaller businesses whose owners do not want to work longer hours.
 Sales growth – where the business tries to make as many sales as possible. This may be because
the managers believe that the survival of the business depends on being large. Large businesses
can also benefit from economies of scale.
 
A business may find that some of their objectives conflict with one and other:
 Growth versus profit: for example, achieving higher sales in the short term (e.g. by cutting
prices) will reduce short-term profit.
 Short-term versus long-term: for example, a business may decide to accept lower cash flows in
the short-term whilst it invests heavily in new products or plant and equipment.
 Large investors in the Stock Exchange are often accused of looking too much at short-term
objectives and company performance rather than investing in a business for the long-term.
 
Alternative Aims and Objectives
Not all businesses seek profit or growth. Some organizations have alternative objectives.
 
Examples of other objectives:
 Ethical and socially responsible objectives – organizations like the Co-op or the Body Shop have
objectives which are based on their beliefs on how one should treat the environment and people
who are less fortunate.
 Public sector corporations are run to not only generate a profit but provide a service to the
public. This service will need to meet the needs of the less well off in society or help improve the
ability of the economy to function: e.g. cheap and accessible transport service.
 Public sector organizations that monitor or control private sector activities have objectives that
are to ensure that the business they are monitoring comply with the laws laid down.
 Health care and education establishments – their objectives are to provide a service – most
private schools for instance have charitable status. Their aim is the enhancement of their pupils
through education.
 Charities and voluntary organizations – their aims and objectives are led by the beliefs they
stand for.
 
Changing Objectives
A business may change its objectives over time due to the following reasons:
 A business may achieve an objective and will need to move onto another one (e.g. survival in the
first year may lead to an objective of increasing profit in the second year).
 The competitive environment might change, with the launch of new products from competitors.
 Technology might change product designs, so sales and production targets might need to
change.
 
 
4. The Ansoff matrix is often used to make decisions. Using the Ansoff matrix and the case study,
outline the potential options available to the Davis group.
 
5. The EU is an attractive proposition for the Davis Group. Using the case study and any other
knowledge and sources, explain why this is so.
 
6. Businesses grow both Organically and Inorganically. Using the case study, explain briefly what
Organic and Inorganic growth are.
 
7. A merger is when 2 firms join together amicably. Although there are a number of positives to joining
together, there can also be negatives. Make a list of both positive and negative effects of a possible
merger.
 
Mergers and acquisitions mean the process of one business purchasing another business and blending
the two together. Merging and acquiring a business is also known as a "take over." There are the pros
and cons when it comes to the business of mergers and acquisitions.
 
Pros
Mergers and acquisitions have a profitable side that can create quite enormous profit for a company
and expose the business to a myriad of financial resources. For a company that is on the verge of
bankruptcy or in financial trouble from other reasons, merging with another company may become the
only way to not only save the company but free up some much needed cash and credit. Acquiring a
business for the purpose of creating a conglomerate or a quick sale and turning a profit, is part of the
allure of mergers and acquisitions. In the United Kingdom the steps that are taken to purchase a
business or merge with one are monitored and must be adhere too. The European Community Merger
Regulation oversees the transaction of all mergers and acquisitions. The organization investigates
thoroughly the business dealings between the parties involved in either the merger or business
acquisition. The proper documentation must be presented as well as the reason for the merger or
business purchase. The stakeholder's concerns must be addressed because once the deal is finalized, all
company debt and stakeholder's issues are inherited by the new ownership. Employees of the company
being the one that is merged into, must be fairly compensated or secured a position within the blended
company, re-trained or referred to another company.
 Benefits of Synergies
 Getting Assets at competitive rates
 More market share
 R&D of other taken over company/merged Company
 Removal of a competitor from the competition
 
 
Cons
With the fear of terrorism ever present each country is exercising caution when it comes to foreign
ownership of a business within its country. Through out the UK there is a growing sentiment over
allowing too much foreign ownership within the country and company mergers. Certain countries are
forbidden to purchase land or purchase any type of business in the UK, for various reasons. There has
also been a surge in businesses within the United Kingdom merging with one another and in some cases
hostile take overs. The trend of mergers and acquisitions is cyclical and with the banks and other lending
institutions refusing to extend credit or make loans, is slowing the merging of businesses down. For
some international companies obtaining loans and credit is slowing down, the UK foreign ownership
trend but not for long. Mergers and acquisitions is here to stay.
 
 
Whenever a business is faced with the prospects of a merger, whether it is initiating the offer or another
company is looking to merge with it, all of the pros and cons must be considered. While a potential
merger might be a good strategic fit or allow a company to expand into new markets, the disruption in
business or the difficulties of integration might outweigh whatever synergies are gained.
 Goals
To be able to understand the pros and cons of a potential merger, the first thing that must
be understood is the goals of each company. Will a merger accomplish what each company
desires? Once the goals of both companies are understood, management can begin to list
the pros and cons of the potential deal.
 Expansion
Expanding the business is often one of the driving forces behind mergers. For example, if a
bank has operations in the Midwest but wants to expand into the seemingly lucrative
Florida market, the easiest thing to do is to identify a small regional bank operating in
Florida and propose a merger. This merger could provide an instant market presence and an
instant customer base to the Midwestern bank. The Florida bank could benefit because it
would get access to the large Midwestern bank's efficient operating processes and cheaper
capital.
 Vertical Integration
Vertical integration is another potential benefit of mergers between suppliers and
producers. By vertically integrating a company, the company can control both their
upstream and their downstream. They don't have to worry about sourcing raw materials or
parts because they own the company that supplies them.
 Business Integration
On the flip side of gaining market share and improved margins is the huge con of actually
integrating the two companies. Due to the differences in systems, processes, and even
corporate cultures, companies can have a difficult time getting the two companies to work
together.
 Business Disruption
As a result of the difficulties in merging operations, systems, and employees, business
disruption can occur. This can take the form of erratic inventory levels, late shipments, and
missed deadlines. These disruptions can ultimately affect the company's revenues, margins
and profits.
All the Pros and Cons
Evaluating all the pros and cons of a potential merger are important for the success of the endeavor.
Each situation will be unique but a systematic, thorough approach should be used whenever a company
is considering an offer. By understanding the goals of each organization, management will have an
easier time understanding whether they should complete the deal.
 
 
8. Takeovers occur when a company buys at least 51% of the shares of another company. Using the
internet and any other media resources investigate whether there have been any high profile takeovers
tat have taken place in the last year.
 
 
9. Using the case study and any other examples explain the differences between Horizontal and
Vertical Integration.
 
 
10. Businesses often acquire other businesses for strategic reasons. Using the case study and any other
sources, give reasons and examples why acquisitions may have occurred.
11. When companies want to raise finance, the Gearing ratio is always considered by the various
financial institutions. Why might the Gearing ratio be a make or break calculation for a business wanting
to borrow money.
 
 
12. The Davis Service Group has adopted a decentralized approach to running the group. Why is this
essential to its success?
 
In a centralized organization head office(or a few senior managers) will retain the major responsibilities
and powers. Conversely decentralized organizations will spread responsibility for specific decisions
across various outlets and lower level managers, including branches or units located away from head
office/head quarters. An example of a decentralized structure is Tesco the supermarket chain. Each
store of Tesco has a store manager who can make certain decisions concerning their store. The store
manager is responsible to a regional manager .
 
Organizations may also decide that a combination of centralization and decentralization is more
effective. For example functions such as accounting and purchasing may be centralized to save costs.
Whilst tasks such as recruitment may be decentralized as units away from head office may have staffing
needs specific only to them.
 
Certain organizations implement vertical decentralization which means that they have handed the
power to make certain decisions, down the hierarchy of their organization. Vertical decentralization
increases the input, people at the bottom of the organization chart have in decision making.
 
Horizontal decentralization spreads responsibility across the organization. A good example of this is the
implementation of new technology across the whole business. This implementation will be the sole
responsibility of technology specialists
 
Advantages of Centralized Structure For Advantages of Decentralized Structure For
Organizations Organizations

Senior managers enjoy greater control over the Senior managers have time to concentrate on the
organization. most important decisions (as the other decisions
can be undertaken by other people down the
organization structure.

The use of standardized procedures can results in Decision making is a form of empowerment.
cost savings. Empowerment can increase motivation and
therefore mean that staff output increases.

Decisions can be made to benefit the organizations
as a whole. Whereas a decision made by a
department manager may benefit their department,
but disadvantage other departments.
People lower down the chain have a greater
understanding of the environment they work in
and the people (customers and colleagues) that
they interact with. This knowledge skills and
experience may enable them to make more

The organization can benefit from the decision
making of experienced senior managers.
In uncertain times the organization will need strong
leadership and pull in the same direction. It is
believed that strong leadership is often best given
from above.
effective decisions than senior managers.
Empowerment will enable departments and their
employees to respond faster to changes and new
challenges. Whereas it may take senior managers
longer to appreciate that business needs have
changed.
Empowerment makes it easier for people to
accept and make a success of more responsibility.