Decentralized profit centers of a transnational company...

Decentralized profit centers of a transnational company and evaluation of their activities

The larger the international company and the more complex the structure of its organization, the more difficult it is for its administration to effectively manage the company. Many multinational companies solve the problems that arise in the process of decentralization of management. To coordinate all the increasingly complex economic ties between dynamically developing transnational companies, separate subdivisions are given the status of semi-autonomous economic units, each of which is the center of profit.

Thus, the number of issues transferred to a higher level of management is reduced, and the controllability of the company as a whole is increased (the remaining more important links are in a position to be better controlled by the management). Strengthening the independence of regional companies allows them to work more quickly in local markets, which is especially important for companies operating in different countries. The autonomy of the branches increases their flexibility and speed of response to the demands of the national market, allows to correctly assess the results of their own activities.

Such a policy became possible due to advances in communications and information technology, the development of national and international data banks, and ubiquitous computerization. It allows transnational corporations to coordinate the production and financial activity of foreign branches and subsidiaries.

Managers of subordinate units that are branches of the parent company or individual corporations get the right to plan their activities for the sale of products, establish prices for their products, determine staffing and material costs, choose suppliers both inside the company and outside, and also channels marketing and distribution. The manager of a subordinate economic unit has the full right to make any short-term decisions and is responsible for them. In other words, departmental managers act as if their branches are independent corporations, although in reality they may not be such. The group of top managers of the parent company retains responsibility for the development of long-term policies, especially in the field of capital investments, for the organization, liquidation and merger of decentralized business units, as well as for the selection of managers of these units and evaluation of their activities. As for the last point, the top management has a tendency to consider profit as the main criterion for the success of the heads of offices. After all, profit is the main indicator of the company's prosperity. However, sometimes top managers find that using profit as a measure of internal control is more complicated and contradictory than setting such a criterion for the company as a whole.

In a decentralized company, where managerial powers are delegated to heads of departments that can be organized as separate corporations, there is a need to determine a profit indicator that will serve to assess the performance of the administration of the offices and monitor the decisions it makes. The indicator of profit should exclude all factors that heads of departments can not manage. This means that it must be independent not only of decisions coming from above, but also of the quality of the work of those departments with which the department in question interacts.

This is the managed profit of the branches, which represents the profit remaining from the revenue of the branch (or subsidiary), minus all variable costs of the office, as well as all overheads that are in charge heads of departments.

Also We Can Offer!

Other services that we offer

If you don’t see the necessary subject, paper type, or topic in our list of available services and examples, don’t worry! We have a number of other academic disciplines to suit the needs of anyone who visits this website looking for help.

How to ...

We made your life easier with putting together a big number of articles and guidelines on how to plan and write different types of assignments (Essay, Research Paper, Dissertation etc)