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Financial Management | November 2013 1

RESOURCE
study
In this issue:
Paper E1 Enterprise
Operations, p4

notes
T4 part B Test of Professional
Competence in Management
Accounting, p6
Paper F2 Financial
Management, p9
Paper P2 Performance
Management, p10

Paper E1 by the following learning outcome in the


information systems segment: Discuss
ways of organising and managing infor-

Enterprise mation system activities in the context


of the wider organisation. But the debate

Operations on whether activities should be central-


ised or decentralised can be considered
across many more functions, including
A common error committed by candidates when answering questions finance, HR, legal and marketing.
on the centralisation versus decentralisation debate is to conflate The centralisation versus decentrali-
sation debate boils down to where the
decentralisation with outsourcing. These are quite separate concepts
decision-making power should lie. A
By Tanya Matheson centralised organisation is one in which

T
this power resides at higher levels, such
as among senior managers at head office.
he E1 paper may well be The syllabus, which covers a huge Once they have made their decisions,
CIMA students first real amount of ground, is divided into five these are communicated down through
insight into the opportu- main segments of equal weight: the organisation to be enacted at lower
nities and expectations l The global business environment. levels. Where an organisation has s everal
that await them when l Information systems. locations or units, it can become difficult
they become fully quali- l Operations management. to operate a truly centralised business,
fied management accountants. Given l Marketing. so most large companies will need to
that the syllabus serves as a mere intro- l Managing human capital. incorporate a degree of decentralisation.
duction to the context of international In considering each of these, students The issue then becomes more about
business in the most significant func- can start to see the bigger picture of the i ndependence: how much control and
tional areas (apart from finance, of management role and its impact on how decision-making authority should the
course), E1 leaves one in no doubt that businesses of all sizes and shapes are run. business units have?
theres far more to being a financial man- Historically, the topic of centralisation A good example of a centralised busi-
ager than merely dealing with numbers. versus decentralisation has been covered ness would be a multinational fast-
2 Financial
Financial Management
Management || September
November 2013

l It can increase the organisations flex-


ibility with regard to minor decisions.
By allowing units to become more au-
tonomous, it reduces bureaucracy.
l It enables local managers, who have a
deeper knowledge of local situations, to
make decisions and resolve conflicts.
l It means that decisions can be tailored
more to local circumstances and con-
sumers needs. This will help to improve
customer service.
l It empowers people further down the
hierarchy by encouraging them to inno-
vate and use their initiative, which
serves to boost morale and increase their
job satisfaction.
In the exam you should concentrate
on understanding the question require-
ments. Often the examiners comments
in the post-exam guide indicate that
many candidates answered the question
they would prefer to have seen rather
than the one actually asked.
The following tips will help to keep
your mind focused when it comes to
preparing for the exam:
l Answer the question asked, rather
than the one you wanted to see. Candi-
dates often mention o utsourcing when
answering questions relating to central-
food chain such as McDonalds or Burger The advantages of centralisation are isation and decentralisation, but no
King. A centralised structure enables as follows: marks will be awarded for this if the
control and consistency to be main- l The single point of control enables topic isnt included in the requirement.
tained across thousands of outlets, decisions to be made more quickly and l Read every element of the question
while saving on overheads such as local easily, as senior managers will have a before starting to write your answer.
payroll and accounting functions clearer picture of the whole organisation. Often a scenario will cover several issues,
through economies of scale. Franchis- l Once decisions have been made, the so separating your thoughts before put-
ing, a popular approach among fast-food top-down management style of a cen- ting pen to paper can help.
retailers, has increased in popularity tralised organisation makes it easier for l Plan your answers, applying what you
recently. It involves replicating another a standard practice to be implemented have learnt to the scenario. You will not
businesss successful practices at a local throughout the organisation. gain maximum marks by simply regur-
level. Crucially, this enables the opera- l It helps the organisation to focus on its gitating everything you know about
tor to benefit (for a fee) from the fran- long-term goals, especially in instances thesubject in question. The key to the
chisors centralised systems, supplies, where there is one individual leading answer lies in the scenario, so use the
advertising and branding. thecompany. resources available to you. An answer
In a business context, decentralisa- l It makes the organisation easier to plan will also help you to avoid getting
tion is the delegation of decision-making co-ordinate and control from the hub. your answers to sub-questions confused.
authority to smaller local units at lower l It facilitates the concentration of skills, l Note the mark allocation. You would
levels of the organisation. This takes enabling specialists to be deployed effi- expect to write more for a 10-mark ques-
some control away from the hub and will ciently across the organisation. tion than for a five-mark question, but
often result in an upward flow of infor- l Because all the information is stored the focus is definitely on quality over
mation the opposite of what happens in one place, it improves communica- quantity. If a question offers 10 marks
in a centralised organisation. A good tion and reporting. for the advantages of centralisation,
e xample of a decentralised business l It avoids the duplication of roles across expect to have to make five substantive
would be a large department-store chain the organisation, thereby saving costs. points, with examples to support these,
such as John Lewis or Debenhams. Each The advantages of decentralisation on youve guessed it the advantages
store has a manager who is able to make are as follows: of centralisation.
certain d
ecisions locally, such as which l It relieves senior managers from dealing
products to promote, whom to recruit with day-to-day operational issues, ena- Tanya Matheson is a marker for E1 and
and how to handle customer complaints. bling them to focus on strategic matters. a freelance tutor.