Two ways to run a chain of bakeries: Goldcrust plc and Lena's Bakery Ltd both sell bread, but they decide things in very different ways.
Goldcrust plc: 400 bakeries: Every loaf on every shelf, every price and every flour supplier is chosen at its head office. A Goldcrust shop manager opens up, follows the plan and sends the numbers back.
Lena's Bakery Ltd: three shops
Aisha, who manages the High Street shop, asks Lena for something different: let me choose what we bake each day and what we charge. The office workers want lunch rolls, and the café opposite has just cut its prices.
The question underneath both is the same: who has the power to decide (decision-making authority)? At Goldcrust that power sits in one place. Decisions are made by senior managers at the head office, and everyone else mainly carries them out. That is centralisation. What Aisha is asking for is the opposite: some of the power passed down to the managers in the shops, who are closer to the customers. That is decentralisation.
Centralisation: decided at the centre
- Who decides. Senior managers at head office, for the whole business.
- What shop managers do. Carry out the decisions and report back.
- At Goldcrust. The same range and the same prices in all 400 bakeries.
Decentralisation: decided nearer the customer
- Who decides. Managers away from head office, for their own shop or region.
- What head office keeps. The biggest decisions: strategy, big spending, new shops.
- At Lena's, if Aisha gets her way. Each shop chooses its own bakes and sets its own prices.
A dial, not a switch: No real business is fully one or the other. Even the most decentralised business keeps the biggest decisions at the top, and even Goldcrust lets a shop manager decide who works on Saturday.
So the useful question is not 'is it centralised?' but 'which decisions are made where?'
| Decision | Goldcrust plc | Lena's Bakery Ltd, if Aisha gets her way |
|---|---|---|
| What to bake each day | Head office, the same list for every shop | Each shop manager, from the Mill Lane list |
| Prices | Head office, one price list | Each shop manager, close to Lena's price list |
| Which flour supplier | Head office | Lena and Marco |
| The staff rota | The shop manager | The shop manager |
| Opening a new shop | Head office | Lena and Marco |
In 2.2.3, delegation meant a manager passing one task, and the authority to do it, to someone lower down. Decentralisation is delegation built into the structure: a lasting share of the decisions handed to managers across the business. As with any delegation, the person at the top stays responsible for the result. If Aisha's lunch rolls fail, Lena still answers for it.
It is about who decides, not about buildings: A business with one office can be decentralised, if the people in it make their own decisions. A chain with 400 shops can be centralised, if every decision comes from head office.
Centralisation describes where the decisions are made, not how many sites there are or where the offices stand.
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One decision, 400 bakeries: Keeping decisions at the centre means head office decides and every shop carries it out. Here is how fast that can work.
Monday to Tuesday: On Monday Goldcrust's head office decides to switch every bakery to a cheaper flour supplier and to put croissants up to $2.50. By Tuesday morning all 400 shops have the new flour and the new price, and every customer in the country pays the same.
Nobody in the shops was asked. Nobody in the shops had to be.
What keeping decisions at the centre gives
- Consistency: the same loaf, price and service in every shop, which protects the brand
- Lower costs: one buyer orders flour for 400 bakeries and gets a lower price per bag
- Control: senior managers who see the whole business make the big decisions
- One decision reaches everyone at once, in the same way, with no 400 separate debates
- Fewer people need the skills and the pay of a decision-maker
What it costs
- Slow on local problems: a request climbs the chain of command and comes back down
- Head office cannot see local conditions, so one plan fits some shops badly
- Shop managers only carry out orders, so they may feel less trusted and less motivated
- Future senior managers get no practice at making decisions
- Too many decisions pile up at the top
The station shop's breakfast rolls: Goldcrust's shop by the railway station sells out of breakfast rolls by eight every morning. The manager asks for a bigger order. Her email goes to the area manager, then the regional manager, then the buying team at head office: three levels of the hierarchy, and three weeks.
What the wait costs: Every morning of those three weeks, commuters walk out with nothing. Head office did nothing wrong; it simply could not see the queue.
So centralisation suits decisions where sameness matters more than local knowledge: the brand, the recipes, food safety, buying flour in bulk. It suits a business whose shops are alike and whose customers want the same thing everywhere. It suits them badly when shops face different customers, or when a problem needs an answer today.
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Aisha's trial: Lena says yes, for three months. Each shop manager chooses four of the day's bakes from the Mill Lane list and sets prices within 10% of Lena's price list.
Aisha's first week: By Friday Aisha has added lunch rolls for the office workers. The afternoon the café opposite cuts its prices, she puts on a coffee-and-croissant deal to match it, without phoning anyone.
What passing decisions down gives
- Local knowledge: Aisha sees who comes in and what sells, which Lena cannot see from Mill Lane
- Faster decisions: she answers the café's price cut the same day, with nobody to ask
- Motivation: being trusted with real decisions makes managers feel valued
- Develops managers: Aisha learns to decide, ready to run a bigger shop
- Frees Lena and Marco for the big decisions, such as where a fourth shop should go
What it costs
- Inconsistency: a croissant is $2.80 on High Street and $3.05 across town, and customers notice
- Harder to coordinate: Mill Lane now bakes three different ranges, so each batch costs more
- Poor decisions if a manager lacks experience, and Lena still answers for them
- Less control of the brand: a shop may drop the bread the bakery is known for
Local choices, one direction: In 1.3.1 the mission statement let the shop managers turn down cheap frozen dough without phoning Lena. The same promise, bread made by hand every morning, now keeps three managers' choices pointing the same way.
A clear aim is one of the things that makes passing decisions down safer.
Notice what Lena has not handed over. The recipes, food safety, the flour supplier and any spending beyond each shop's budget stay with her and Marco. Aisha decides what her shop sells and what it charges; the centre decides the rest. That split, not a choice between all and nothing, is what most businesses actually run on.
The $3,500 fridge: On a hot Saturday in July, the High Street shop's chilled cabinet breaks down. Aisha buys a new display fridge for $3,500 from a shop in town.
Saved by noon, but not hers to buy: The fridge is delivered by noon. Not one cake is lost.
But the fridge was not in the shop's budget. Equipment for all three shops is Marco's job, and nobody asked him.
Even in a decentralised business, every manager has limits on what they can decide alone (limits of authority). Aisha may set her prices. She may not spend money her shop was never given, or make a decision that belongs to someone else. So Lena and Marco expected her to ask first, and for three different reasons.
Why Aisha was expected to seek approval
The money was not in the budget
A budget is the plan for what each shop may spend. $3,500 nobody planned for comes out of money meant for something else, and it tells every manager the budget can be ignored.
The decision sat higher up the chain of command
Aisha reports to Lena and Marco. Large spending is one of the decisions kept at the centre, so it needed their say, even though it turned out well. Asking also protects Aisha if something goes wrong.
It was outside her area
Aisha runs the counter, the staff and the range. Equipment is bought by Marco for all three shops. He might have had the old cabinet repaired for a fraction of the price.
A good outcome does not change the answer: The fridge saved the day, and that is beside the point. Aisha was expected to ask because the decision was not hers to make alone.
'It was expensive' is half a reason. Say why cost needs approval: it was not in the budget.
When the world outside changes, the balance moves
| What changes outside the business | Which way it pushes | Why |
|---|---|---|
| A new rival next to one shop, or tastes that differ from area to area | Decentralise that decision | The manager on the spot sees it first and can answer the same day |
| Expanding into a new region or country | Decentralise more | Head office does not know the new customers; local managers soon will |
| A food-safety scare: a flour supplier recalls a batch | Centralise, at least for now | One decision, one message, in every shop at once |
| Rising costs or a recession: flour up 30% | Centralise buying and spending | One buyer gets a lower price, and the centre can hold every shop's spending down |
So which is better? Neither, on its own. Ask what has changed outside the business, which decisions it touches, and who has the knowledge and the speed to make them well. Goldcrust, facing a flour recall, is right to decide at the centre. Lena, facing a new café next to one shop, is right to let Aisha answer it.
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How this comes up: The case describes a manager who made a big decision alone. You explain one reason why the business would have expected that manager to seek approval first, for two marks.
Other ways it is asked
- Define centralisation or decentralisation, for two marks.
- Explain one advantage and one disadvantage of decentralising for a named business, for four.
- Inside other answers: commenting on an organization chart where three directors make every decision.
- In a longer question: weighing up a business spread across many sites.
The two-mark pattern
- Give the reason as a rule. The spending was not in the budget; or the decision belonged higher up the chain of command; or it lay outside the manager's own area.
- Show it in the case. Aisha spent $3,500 that the High Street shop's budget did not have, on equipment that Marco buys for all three shops.
Two traps: 'It worked, so it was fine.' The question is why approval was expected, not whether the decision was good. A happy ending does not answer it.
One reason, shown in the case. A second reason adds nothing. One rule, with a name or a number from the case, takes both marks.
Explain one reason why Lena's Bakery Ltd would have expected Aisha to seek approval before buying the new display fridge.
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See the answer broken into clear points, with guidance on how each point earns marks.