Centralization and Decentralization of businesses

Centralization and Decentralization

Businesses can have either a centralized decision-making structure, in which case all or most decisions are made at the top of the organization by the CEO or Board of Directors, or a decentralized structure of decision-making, in which the process is devolved and distributed down to the most appropriate level, most likely the Departmental Managers. In a participatory environment, maybe the Departmental Managers also have the chance to tell management whether a particular decision is viable and feasible in the current environment or not, depending on the skill set, strategy, and strengths of the enterprise. Read the article further to learn more about Centralization and Decentralization of businesses.

Centralization and Decentralization of businesses

Characteristics of Centralization

Companies that want to consolidate power and decision-making abilities at the top of the organizational structure may be regarded as centralized organizations.  For instance, if the CEO of a business has a particular vision and wishes to remain pure to his perspective, he will centralize the decision making so that he is able to control as much of the working and results as possible. This is undoubtedly beneficial for companies who need to have stability or instead are facing a crisis and need one good leader to guide them back to profitability. As employees become more capable and specialized and organizations expand, centralization is not possible.  Centralized managing is rare today because of its many demerits.

Characteristics of Decentralization

When power is consolidated at the top, there will be a vacuum if the CEO becomes incapable of leading the firm due to death, illness or growth in organizational size causing a weak span of control. Moreover, the employees will also feel less motivated to perform if they are not given an opportunity to share their ideas on how the current situation can be improved. In fact, decentralized firms are becoming more popular nowadays as the need for organizations to decentralize and share information is prevalent. Decentralization moreover allows organizations to take advantage of the specialized skills by allowing decision-making to take place at the most appropriate level in the organization.

Empowering Employees

It thereby empowers employees and allows them to improve their performance by being able to act to improve inefficient or defective areas immediately-that too without approval from the top of the organization. Another advantage of decentralization is that it lets the managers of different business areas use their first-hand knowledge and experience to actually improve their respective departments. If a number of key individuals throughout the firm have an input on specific decisions, we can trust them to obtain the best information and use their minds to provide appropriate analysis

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