IB Business Management HL 2.2.1 Organizational Structure Terminology Questions

Transfer


Transfer is a publicly traded shipping business. Its success has been built on its ambitious mission statement:
"Our shipping business will always be about providing a first class service to our customers and making it last. Whatever it takes."
Managers at individual regional profit centres were empowered to make their own decisions in response to local market conditions. Transfer's financial reward package allowed employees to share in their regional profit centre's performance through an employee share-ownership scheme. Transfer had consistently won awards for its excellent customer service. Management and staff turnover was very low.
However, after years of profits that were low by industry standards, Transfer suffered a significant financial loss. The current chief executive officer (CEO) claimed it was due to increased global competition and rising direct costs. Transfer's non-employee shareholders, who owned 60 % of Transfer, demanded that immediate action be taken. At the most recent annual general meeting (AGM) the CEO was forced to resign. A new CEO, Heather Davies, was appointed.
Heather had a reputation as an autocratic leader. She had a successful record of returning loss making companies to high profits, but only after making significant changes. At her first press conference, Heather announced her plan to:
- reduce two-way communication and create a much higher degree of centralization within Transfer
- remove all profit centres.
Immediately, Heather dismissed many managers who were, in her opinion, unproductive.
She defended her actions by arguing that Transfer had become inefficient, with poor decision making at regional levels. Heather argued that regional profit centre managers were setting their own objectives which did not follow the mission statement.
At the same time, an unknown manager gave a national newspaper interview which was highly critical of Heather's leadership style, with examples of workplace unrest. When Heather found out, she threatened to dismiss any manager who questioned her authority or the new plan. Six months later, Transfer's share price had grown by 15 % and profits had begun to significantly increase.

Identify two characteristics of a company with a high degree of centralization.