A Centralized Structure Transforms Home Depot
1. In what ways can (a) decentralizing and (b) centralizing authority help an organization like Home Depot to improve its performance?
From 2000 to 2007, Robert Nardelli, a former senior executive at GE (General Electric), served as CEO of Home Depot. Almost immediately, he transformed Home Depot’s logistics and leadership structure from decentralized to centralized. It was one way to respond to the pressures of competition from the Internet and other rivals, and sales increased.
With that said, we can see in the scenario that Nardelli (Jones, p. 145):
“Over time, he recentralized authority and removed store managers’ ability to choose what products to stock for their individual stores. His goal was to streamline and centralize Home Depot’s purchasing activities at its Atlanta headquarters and thus reduce costs.”
The strength in such a maneuver is economies of scale, something modern organizations cannot do without, if possible.
Centralizing authority, in theory, can save an organization money and effort through bulk purchase of inventory and efficiencies in operations. It also allows a clear vision to flow down from management to each employee. If the vision is strong, workable, and sustainable, then success is sure to follow.
In many ways, centralization of authority is basically increasing bureaucracy. Gareth Jones (2010, p. 134) describes bureaucracy as “a form of organizational structure in which people can be held accountable for their actions…” Rules, SOPs (Standard Operating Procedures), and norms clarify expectations from higher management, and ensure every in the organization is aware of the rewards and punishments for performance and poor behavior. The problem arises when managers fail to control the bureaucracy and it becomes “tall, centralized, and inflexible.” (Jones, p. 138)
Decentralizing authority, however, has two distinct advantages....
References: Jones, G. (2010). Organizational Theory, Design, and Change. Upper Saddle River, New Jersey: Prentice Hall.
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