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IAI Actuarial Core Principles · Business Management · Communicating strategy; culture and structure in decision making; strategy case studies

Lakshmi Pensions, a rapidly growing firm, decides to replace its centralised decision model with a decentralised one. Which outcome is the most likely benefit of decentralising decisions?

The likely benefit is faster local responses and development of managers' skills, because decisions are taken closer to customers. Decentralisation typically reduces uniformity and central cost control, and raises the risk of divergent objectives and the need for coordination, so the other options are drawbacks.

  1. AGreater uniformity of decisions across all business units
  2. BTighter central control over costs
  3. CFaster local responses and development of managers' skillsCorrect
  4. DLower risk that local units pursue differing objectives
  5. Reduced need for coordination between units

Explanation

Decentralisation moves decisions nearer to customers, giving quicker local response and developing managerial capability. It tends to reduce uniformity and central control and increases the risk of diverging objectives and the need for coordination.

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