Posted: February 28th, 2023

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Bertelsmann is one of the worlds leading media companies, and its decentalised structure has been behind this success, however it is also causing a number of issues. A decentralised structure is defined by Bartol and Martin (1998, p. 269) as, “the extent to which power and authority are delegated to the lower levels”, whilst Gomez (2004, p. 379) defines it as “the location of decision authority at lower levels in the organisation. This compares to a centralised organisation where top level managers make decisions and little authority is delegated (Coulter & Robbins, 2005 p.239).
At Bertelsmann, divisions in the company acted as separate entities to each other, with little direct interference from the board and this was creating problems. In the case study, the problems that decentralisation caused Bertelsmann were exposed when “senior managers complained about the lack of synergies across the group”. (Bartol and Martin,1998, p. 57) define synergy as “the ability of the whole to equal more than the sum of its parts”. Managers felt that the separate entities Bertelsmann had been split into were not adding value to the organisation as a whole.
Decentralisation often eases the workload of top managers, allowing them to concentrate on strategic issues. The resulting empowerment of employees increases their level of discretion when making decisions (Coulter & Robbins, 2005 p. 240), and motivates them. Measuring performance is made easier by the use of profit centres for assessing both individual managers and team performance. Problems with decentralisation include difficulty in coordinating group activities when communication channels are obscured.

The resulting task duplication causes inefficient use of resources (Kidd, 1997), and a lack of synergy caused by decentralisation can result in diseconomies of scale, reducing a firm’s ability to compete. Decentralisation often results in a loss of expertise from top management, as they have more experience and a broader perspective of the company. Owing to the size of Bertelsmann if reforms are going to be implemented, the company may have to adopt a more centralised structure so the changes can be successfully made.
Wossner’s proposed solution to create synergy is to create more cross-sections in areas such as Information Technology. However, Wossner understands that the autonomy of managers cannot be undermined because, as he admits, “I would not have come here if I hadn’t had the chance to run a company (profit centre) at a young age. ” This means that Bertelsmann could find it harder to attract young, dynamic managers if their autonomy is restricted. It is essential that something is done because unchecked, decentralisation can be disastrous for a company.
An extreme case of this would be Enron, which was vaunted for its dynamic and decentralised structure, until its collapse in 2001 (Berinato, 2002). The company allowed each of its departments, which it called “silos” the freedom to design their own IT architecture. The lack of coordinated IT systems played a significant role in the downfall of the company. There are various methods that a company could use to reinvigorate the management structure. For example benchmarking, involves copying the good business practices of the market leader.
This may not be possible due to competitors maintaining a similar structure to the one it already has, or Bertelsmann may not want to stray from its roots, destroying its structure which it considers an important part of the business. Change is a difficult process, especially for Bertelsmann as managers were already highly autonomous. Therefore reinvigoration of the management structure must take place slowly. A good way to reinvigorate the structure might be to de-layer the company, which would widen a manager’s p of control, improving efficiency and also cutting costs in terms of wages.
De-layering would also decrease the size of the chain of command, so information could move up and down the organisation more easily, and decrease the chance of information distortion. This would also increase the reaction speed to top level management, and allow for better feedback from staff. However, the structure should not be widened too much because employees could lose motivated as they feel isolated from their unit of command (Fayol, H 1949).

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