Centralization is the systematic and consistent concentration of authority at central points. Unlike, decentralization is the systematic delegation of authority in an organization. Centralization is best for a small sized organization, but the large sized organization should practice decentralization. Formal communication exists in the centralized organization. Conversely, in decentralization, communication stretches in all directions. In centralization due to the concentration of powers in the hands of a single person, the decision takes time.
On the contrary, decentralization proves better regarding decision making as the decisions are taken much closer to the actions. There are full leadership and coordination in Centralization. Decentralization shares the burden of the top level managers. When the organization has inadequate control over the management, then centralization is implemented, whereas when the organization has full control over its management, decentralization is implemented.
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We can see that the authority is consistent and a systematic hierarchical pattern is observed in Centralization. Centralization in any organization has the flow of communication designed upright, so as the middle and lower management has to strictly follow the directions of the senior management.
Since authority, power is influenced by senior management. The decision-making process is time-consuming and slower. The primary objective of Centralization structure in any business is to involve hierarchical structure whenever there is inadequate control over the organization.
Therefore, it is equally important to also know, that Centralization is quite important for any organization who are looking to ensure their vision, the mission is fulfilled. Thus, it is required to understand that Centralization plays a very important role in any organization and proper information should be known about it. Decentralization in an organization involves spreading power, accountability, and responsibility to various management levels.
Decentralization in any organization has the flow of communication designed freely, so as the middle and lower management has full freedom to overlook the strategies for the organization.
Since the authority and power lie in the hands of middle and lower management. The decision-making process is faster and not so complex. The primary objective of the Decentralization structure in any business is to reduce the amount of burden and responsibility equally among lower and middle management.
Therefore, it is equally important to also know, that Decentralization is quite important for any organization that is looking to systematically distribute the authority among the hierarchy. Thus, it is required to understand that Decentralization plays a very important role in any organization and adequate information should be identified about it. Although both Centralization and Decentralization are important for an organization.
However, Centralization and Decentralization have a lot of differences with respect to decision making, power and authority delegation. To accomplish this, the organizational structure must allow the organization to quickly adapt and take advantage of opportunities.
Therefore, many organizations adopt a decentralized management structure in order to maintain a competitive advantage. While a decentralized organizational structure can be an advantage for many organizations, there are also disadvantages to this type of structure, including:.
The first factory had 14 employees: eight women and six men. This interview on successfully operating a decentralized organization shows it is clear that the key is the people within the organization. Weldon notes that to be successful, a decentralized organization must empower employees to innovate, develop expertise, and collaborate to achieve organizational goals. An underlying assumption is that businesses possess a single structure either centralized or decentralized at any given point.
That is not necessarily the case. For example, businesses often add employees who specialize in the various needs of the organization. Over the life of an organization, it is not uncommon for businesses to demonstrate aspects of both centralization and decentralization. New businesses, for example, are often centralized. When a business first opens, it is common for the owner s to be highly involved in the day-to-day operations. In addition, the small size of a new business allows the owner to have a high level of involvement in both the daily and the strategic decisions of the business.
Strategic decisions, on the other hand, are made fairly infrequently and involve long-term goals of the organization. Being actively involved in the business allows new business owners to gain experience in all aspects of the business so that they can get a sense of the patterns of the daily operations and the decisions that need to be made.
Having too many workers would be inefficient and require the company to incur unnecessary expenses. Having too few workers, on the other hand, may result in inferior quality of products, missed shipments, or lost sales. Additionally, an owner involved in daily operations has the opportunity to evaluate and, if necessary, alter any strategic goals that may impact the daily operations.
Strategic goals relate to all facets of the business, including in which markets to operate, what products and services to offer to customers, how to recruit and retain a talented workforce, and many other aspects of the business. If an owner is involved in daily operations, an example of a potential strategic goal could be tha he or she can determine whether to pursue a cost leadership perspective. When pursuing a cost leadership perspective, companies undertake activities to eliminate costs in order to produce a product or provide a service that has a cost advantage compared to competing products or services.
While providing a high-quality goods or service is important to a company pursuing a cost leadership perspective, the competitive advantage of the company is eliminating wasteful activities that add unnecessary costs, entering into strategic partnerships with suppliers and other companies, and focusing on activities that allow the organization to offer the good or service at a lower price than its competitors.
Being highly involved in both the daily and strategic decisions can be very beneficial as the business is established, but it is demanding on the business owner and, without adjustments, often cannot be sustained. As the business grows, management of a centralized organization faces a choice. Remaining highly involved in the daily decisions of the business results in a low level of involvement in the strategic decisions of the organization.
While this may be effective in the short-term, the risks associated with not establishing and adjusting long-term strategic goals increase. On the other hand, remaining highly involved in the strategic decisions of the business results in a low level of involvement in the daily decisions of the business. This, too, is risky because ineffectively managing daily business decisions may have long-term, negative consequences.
Managers in some organizations follow legal and regulatory requirements to operate their business at the lowest level of acceptable behavior in their business environment in order to keep costs low; however, some stakeholders may expect more than the minimum level of ethics. Stakeholders of business organizations are now insisting on higher ethical standards from their organizations. Another alternative for growing businesses is to move toward a decentralized operating structure.
The management of growing businesses with a decentralized structure has a low level of involvement in the daily decisions of the business. Instead, management in these businesses focuses on strategic decisions that impact the long-term success of the organization. Figure Which of the following is not a common goal of an organization? Figure Which of the following does not describe a management control system? Figure What is a management control system?
What are its components and how does the system help the business? Notice the organization depicted in Figure has segments based on departments as well as geographic regions. In addition, all lines connect directly to the president of the organization. This indicates that the president is responsible for the oversight and decision-making for the production and sales departments as well as the district Northeast, Southwest, and Midwest managers; essentially, the president has seven direct reports.
In this centralized organizational structure, all decision-making responsibility resides with the president.
Figure shows the same organization structured as a decentralized organization. Notice that the organization depicted in Figure has the same segments, which represent departments and geographic regions. There are, however, noticeable differences between the centralized and decentralized structure. Instead of seven direct reports, the president now oversees five direct reports, three of which are based on geography—the Western, Southern, and Eastern regional managers.
Notice, too, each regional district manager is responsible for their respective production and sales departments.
In this decentralized organization, all decision-making responsibility does not reside with the president; regional decisions are delegated to the three regional managers. In a centralized environment, the major decisions are made at the top by the CEO and then are carried out by everyone below the CEO.
In a decentralized environment, the CEO sets the tone for the running of the organization and provides some decision-making guidelines, but the actual decisions for the day-to-day operations are made by the managers at the various levels of the organization. In other words, the essential difference between centralized and decentralized organizations involves decision-making. By , the business moved to its downtown location.
In , a second Jonesboro location was opened. With such growth, the company faced many management challenges. Would it be best for management to remain centralized with decision-making coming from a single location, or should the process be decentralized, allowing local management the flexibility and autonomy to run individual locations? If local management is given autonomy to make their own decisions, will those decisions be in line with company, or perhaps, individual goals?
How will management be evaluated? Will inventory management be a uniform process, or will people and the process have to adapt to accommodate differences in demand at each location? These are just some of the hurdles that Gearhead needed to address. What are some other issues which Gearhead might have considered?
Think in terms of inventory management, personnel, efficiencies, and leadership development. How could Gearhead have use decentralized management to grow and thrive?
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