Centralized or decentralized?: a merger forces a company to decide.

Editor's Note: Scott D. Chase joined Carlisle Plastics, Inc., shortly after it became a wholly owned subsidiary of Tyco International, Ltd. and management decided to relocate the credit and collection function back to Minneapolis. The prior credit staff had been in Arizona and were not retained. In less than a year, Chase faced the challenge of overseeing a merger between Carlisle and Attain Plastics and simultaneously developing a credit staff. This article is based on the presentation he made to his senior management, the results of their decision and his efforts.

In the process of merging two companies with diametrically different ways of viewing the business, it is difficult to know the best way to approach combining entities while continuing to support both of them in the most efficient and effective way possible. It always seems that, ultimately, one will be forced to feel the change more than the other.

As the credit manager of a company with a centralized credit, collection and cash processing function, I was asked to review the process of combining two companies through a merger: one with a decentralized credit and collection function and one is centralized.

On a personal note, I have been in the credit and collection profession for 20 years with many complies - both centralized and decentralized departments. I recognize the pros and cons of both and I believe both can be successful under the right circumstances. The question was which organization style would be best for the company after the merger?

The Centralized Credit Department

Company A's credit department is centralized and located in Minneapolis at Company A headquarters. It has four plants that manufacture its products; plastic bags and plastic sheeting.

Company A is currently set up in a hub and spoke organization where, depending on availability, a customer may be shipped his sheeting products from any one of two plants and his bag products from any one of three plants. If Sioux Falls does not have a particular product in inventory but Battleboro does, Battleboro can ship the product to the customer without concern for the customer's geographical location. This type of procedure holds true for all plants based upon the products manufactured there.

The hub is the Minneapolis customer service center. It controls which plant, or spoke, the product will be shipped from and is able to ensure that the product can be delivered.