Centralised And Decentralised Organisations

• Business Management Theory
• Introduction To Organisational Structures
• Centralised And Decentralised Organisations

Introduction

In a centralised organisation head office (or a few senior managers) will retain the major responsibilities and powers. Conversely decentralised organisations will spread responsibility for specific decisions across various outlets and lower level managers, including branches or units located away from head office/head quarters. An example of a decentralised structure is Tesco the supermarket chain. Each store of Tesco has a store manager who can make certain decisions concerning their store. The store manager is responsible to a regional manager.

The diagram below shows three different ways that organisations make decisions; centralised organisation, vertical decentralisation and horizontal decentralisation

Organisations with a combined Centralised and Decentralised Structure

Organisations may decide that a combination of centralisation and decentralisation is more effective for them. For example functions such as accounting and purchasing may be centralised to save costs. Whilst tasks such as recruitment may be decentralised as units away from head office may have staffing needs specific to them.

Vertical Decentralisation

Certain organisations implement vertical decentralisation which means that they have handed the power to make certain decisions, down the hierarchy of their organisation. Vertical decentralisation increases the input, people at the bottom of the organisation chart have in decision making.

Horizontal Decentralisation

Horizontal decentralisation spreads responsibility across the organisation. A good example of this is the implementation of new technology across the whole business. This implementation will be the sole responsibility of technology specialists

Table Showing Advantages of Centralised And Decentralised Organisations

Advantages Of a Centralised Organisation	Advantages Of a Decentralised Organisation
Senior managers enjoy greater control over the organisation	Senior managers can concentrate on important decisions whilst delegating less important decisions to people down the organisational structure
The use of standardised procedures can results in cost savings	Decision making is a form of empowerment. Empowerment can increase motivation and consequently staff output.
Decisions can be made to benefit the organisations as a whole. Whereas a decision made by a department manager may benefit their department, but disadvantage other departments.	People lower down the chain have a greater understanding of the environment they work in and the people (customers and colleagues) that they interact with. This knowledge, skills and experience may enable employees to make more effective decisions than senior managers
The organisation can benefit from decisions made by experienced senior managers. Strong leadership especially during uncertain times is often best implemented by centralised organisations	Empowerment will enable departments and their employees to respond faster to change. The empowerment provided by decentralised organisations may grants employees the opportunity to make a success of their responsibilities. Although it may take longer for senior managers not directly involved with departments to respond to market changes.

Conclusion

There are a number of different organisational structures each with their advantages and disadvantages. The most appropriate structure will depend on the size of the business and the type of business.

We hope you enjoyed this quick overview about centralised and decentralised organisational structures. Click the links below to learn more about the different types of organisational structures.

1. Organisational Structures
2. Flat Structures
3. Matrix Structure
4. Hierarchical Structures
5. Tall Structures