Centralisation & Decentralisation Niall, Rob and Hannah

Centralisation Definition: where the decision making authority is concentrated amongst a small number of senior managers at the top/centre of the organisational structure. It limits the number of people involved in the decision making process to a few senior executives The executives are aware of the goals and corporate objectives of the business and therefore their decisions will have taken these into consideration, as a result the final decision will be one which helps the business in both the long and short term. It is most likely to be the chosen strategy in times of crisis when the survival of the business is at stake

Decentralisation Where the authority for decision-making is delegated to subordinates in the organisational structure Sometimes inevitable as a business grows Occurs in order to increase the competitiveness of a business Purpose is to delegate decision-making to people lower down the organisational hierarchy 1 – this is because entrepreneurs cannot phyiscally retain control of the day-to-day running of a business 2 – this is mostly likely when the company has become to bureaucratic and diseconomies of scale have set in 3 – it will create training issues as junior and middle managers may not have the correct expertise to make the correct decisions

Decentralisation Advantages Senior managers can concentrate on making long term corporate decisions Subordinates are likely to have increased motivation because their jobs are enriched Day – to – day problems and issues should be resolved more quickly because those closest are making the decisions Delegation increases flexibility Middle and junior managers are better prepared for more senior roles within the organisation 2 – employees will feel that there are valued and this will therefore have a positive effect on productivity and quality 4 – this means that should adapt to changing market conditions more quickly because decisions can be made faster, without reference to senior managers 5 – employees will have more opportunities to demonstrate their potential. This should improve training and development within the organisation, reducing the need to recruit externally and therefore cutting costs

Advantages of Centralised Structure Senior managers enjoy greater control over the organisation. The use of standardised procedures can results in cost savings. The organisation can benefit from the decision making of experienced senior managers.

Drawbacks of Decentralisation Lower level managers may make decisions without fully understanding the “big picture.” Lack of communication Lower level managers may have objectives that are different from the objectives of the entire organisation In a strongly decentralised organisation, it may be more difficult to effectively spread innovative ideas Slower strategic decision-making More difficult to achieve economies of scale Lower level managers may misunderstand the company’s strategy as a whole. · In a truly decentralized organization, there may be a lack of coordination among autonomous managers. This problem can be reduced by clearly defining the company's strategy and communicating it effectively throughout the organization.

Drawbacks of Centralisation Due to the fact that all decisions are made at the top it might result in delays in decision-making and communication. Centralised power and authority might be abused. Doesn’t give an opportunity to lower level managers/supervisors to develop their managerial skills. Centralised organisation faces the problem of lower motivation levels among workforce. The success of organisation depends on the competence of top executives which might be quite risky.

Centralisation example http://www.metacafe.com/watch/497777/easy_paper_chatterbox/