Please, write a discussion post about the Topic/Statement below (200 words) and respond to the two classmate discussion posts (150 words each).
Topic/Statement: Should decision management and decision control be separated? As part of your discussion, provide a real-world example (or provide a fictitious example) of a firm where the control (co
ectly) resides with the same individual as well as an example of a firm where the control is (co
ectly) separated.
(1 or 2 Citations needed for this discussion post)
Classmate discussion post: (Please, the responses need to be a discussion, not an evaluation. You can agree with them and add new information regarding the topic in discussion. No citation required)
Discussion 1:
Robert Mccan
Decision management is the initiation and implementation of decisions (Brickley, Smith, & Zimmerman, XXXXXXXXXXDecision control is the ratification and monitoring of decisions (Brickley et al., XXXXXXXXXXThe decision-making process is
oken down into four steps: initiation which is the generation of proposals for resource utilization, and structuring of contracts; ratification which is the choice of the decision initiatives to be implemented; implementation which is the execution of ratified decisions; and, monitoring which is the measurement of the performance of decision-makers and implementation of rewards (Brickley et al., 2016).
The presence of a board of directors at the top of all companies is a prominent example of separating decision making and decision control (Brickley et al., XXXXXXXXXXShareholders grant principal decision-control rights to the board of directors in order to mitigate potential incentive problems (Brickley et al., XXXXXXXXXXThe board ratifies decisions made by the CEO, who is responsible for the company's leadership (Brickley et al., XXXXXXXXXXThere are monitors and “monitoring the monitors” (Brickley et al., XXXXXXXXXXThe decision making and control separation theory help to explain the frequent use of hierarchies within organizations (Brickley et al., 2016).
For example, Lee Memorial Health System is a hierarchy that uses a hy
id centralized/ decentralized decision system. The top people make most decisions in centralized decision-making systems (Brickley et al., XXXXXXXXXXLower-level employees make most decisions in decentralized systems (Brickley et al., XXXXXXXXXXThe best degree of decentralization depends on the marginal benefits and costs that differ between businesses and over time (Brickley et al., XXXXXXXXXXAlthough decentralization may give rise to a lack of local incentives for local managers not to work to maximize firm value, recent advancements in technology have led to increased decentralization (Brickley et al., 2016).
Under hierarchies, decision-making management is theoretically distinct from decision-making control; that is, individual decisions are supervised and approved by people in authority above them (Brickley et al., XXXXXXXXXXThe decision making and control separation concept implies that empowerment should not mean that an individual has all rights and to a particular decision; managers should set boundaries (Brickley et al., XXXXXXXXXXAn empowered worker has clear rights, subject to approval and oversight by the director, to make and enforce any decision (Brickley et al., XXXXXXXXXXHowever, “granting an employee decision management and decision control rights for the same decision typically will lead to dysfunctional behavior” (Brickley et al., XXXXXXXXXXThis organizational structure is what the literature on large corporations calls separation of “ownership” and “control” (Fama & Jensen, 1998).
Similar to the problem of centralization versus decentralization, relevant factors in making this horizontal choice include knowledge distribution and coordination and control costs (Brickley et al., XXXXXXXXXXExternal audits confirm the separation of decision management and decision control (Brickley et al., XXXXXXXXXXThe benefit of limiting discretion is that it reduces the incentives of individuals to engage in excessive influencing activities (Brickley et al., 2016).
Conclusion. When specialized risk bearing is critical and valuable, decision management and decision control must be separated (Fama & Jensen, XXXXXXXXXXIf the organization is complicated, there may be gains from separating decision management and decision control (Fama & Jensen, XXXXXXXXXXIn this case, it is relatively costless to separate decision control and risk-bearing (Fama & Jensen, XXXXXXXXXXWhenever decision-makers are not owners, separating decision management and decision control limits conflicts of interest (Brickley et al., 2016). “The important thing is that one employee not have both the decision management and decision control rights for the same decision” (Brickley et al., 2016).
Only when the decision-maker also is the principal residual claimant, the person with the legal rights to the profits of the enterprise once all the other claimants of the firm (e.g., bondholders and employees) are paid, does it make sense to combine decision management and control due to prohibitive costs of separation (Brickley et al., 2016).
References
Brickley, J., Smith, C., & Zimmerman, J XXXXXXXXXXManagerial economics and organizational architecture, (6th ed.), McGraw-Hill/Irwin: New York.
Fama, E. F., & Jensen, M. C XXXXXXXXXXSeparation of ownership and control. Retrieved from https:
ucema.edu.a
~je49/organizacion/Fama_Jensen.pdf
Discussion 2:
Melody Chamberlin
With the amount of decisions that are made in businesses every day, many people will not have both decision management and decision control and the separation of this “helps explain the widespread use of hierarchies within organizations” (Brickley, Smith and Zimmerman, 2019, p.414). If both of these functions are assigned to the same employee, it is hard to handle, and it generally leads to chaos.
Decision management and decision control are typically not separated into smaller businesses. In a small business, it is typically the owner, making decisions and choosing an action among alternatives and then controlling the decision by evaluating the results that can come with the decision (Prezi, XXXXXXXXXXMy first job was in a family-owned restaurant. The husband managed the kitchen, including the back-of-house staff, menu, and ordering. The wife managed the front-of-house staff, promotional events, and customers. They worked in tandem, with clearly separate responsibilities but communicated effectively.
“Whenever decision-makers are not owners, separating decision management and decision control limits conflict of interest” (Brickley, Smith and Zimmerman, 2019, p.413). The company that I am employed with and many other large organizations separate their decision management and decision control. The “decisions of individuals are monitored and ratified by individuals by individuals that are higher than them in the hierarchy” (Brickley, Smith and Zimmerman, 2019, p.414). This occurs from part-time hourly employees up the hierarchy to the CEO and board of directors.
Separating decision management and decision control is the best outcome for organizations to mitigate incentive problems and conflicts of interest. “Owners or the boards of directors make decisions on main goals and strategic goals either directly or indirectly by using their power to reject or ove
ule decisions on goals by managers” (Anderson, XXXXXXXXXXThe CEO is typically responsible for the decisions that are made, and the board of directors has the decision control and the ability to fire the CEO.
References:
Anderson, J. (2016, September 22). Owners vs. Executives, Decisions vs. Control, and the Stagirite. Retrieved November 17, 2019, from https:
www.oru.se/contentassets/f4d2256d440a4db5989f735856d6165c/owners-managers--for-sem XXXXXXXXXXpdf
Brickley, J., Smith, C., & Zimmerman, J XXXXXXXXXXManagerial economics and
organizational architecture (6th ed.). New York: McGraw Hill/Irwin.
Prezi. (2013, October 11). Management Decision and Control. Retrieved
November 17, 2019 from https:
prezi.com/5mj1iyhd84mk/management-decision-and-control/?webgl=0