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Advantages of Decentralization

The document discusses the advantages and disadvantages of decentralization and centralization in organizational structure. [1] Decentralization allows for quicker decision making, better ability to expand, skilled management, increased employee morale, and better use of lower and middle management. [2] However, decentralization can also lead to coordination problems, increased costs from duplication, incongruity in operations, departments prioritizing their own goals over organizational goals, and over-reliance on division managers. [3] Centralization allows for consistent messaging, standardized products and processes, but limits creativity and flexibility to adapt to changing customer demands.

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Dương Phong Nguyên
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39 views2 pages

Advantages of Decentralization

The document discusses the advantages and disadvantages of decentralization and centralization in organizational structure. [1] Decentralization allows for quicker decision making, better ability to expand, skilled management, increased employee morale, and better use of lower and middle management. [2] However, decentralization can also lead to coordination problems, increased costs from duplication, incongruity in operations, departments prioritizing their own goals over organizational goals, and over-reliance on division managers. [3] Centralization allows for consistent messaging, standardized products and processes, but limits creativity and flexibility to adapt to changing customer demands.

Uploaded by

Dương Phong Nguyên
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Advantages of decentralization:

 Quick decision and response times—it is important for decisions to be made and
implemented in a timely manner. In order to remain competitive, it is important for
organizations to take advantage of opportunities that fit within the organization’s strategy.
 Better ability to expand company—it is important for organizations to constantly
explore new opportunities to provide goods and services to its customers.
 Skilled and/or specialized management—organizations must invest in developing
highly skilled employees who are able to make sound decisions that help the organization
achieve its goals.
 Increased morale of employees—the success of an organization depends on its ability
to obtain, develop, and retain highly motivated employees. Empowering employees to make
decisions is one way to help increase employee morale.
 Link between compensation and responsibility—promotional opportunities are often
linked with a corresponding increase in compensation. In a decentralized organization, a
compensation increase often corresponds to a commensurate increase in the responsibilities
associated with learning new skills, increased decision-making authority, and supervision of
other employees.
 Better use of lower and middle management—many tasks must be performed in order
to achieve success in an organization. Decentralized organizations often rely on lower and
middle management to perform many of these tasks. This allows managers to gain valuable
experience and expertise in different areas.

Disadvantages of decentralization:

 Coordination problems—it is important for an organization to be working toward a


common goal. Because decision-making is delegated in a decentralized organization,
it is often difficult to ensure that all segments of the company are working in a
consistent manner to achieve the strategic goals of the organization.
 Increased administrative costs due to duplication of efforts—because similar
decisions need to be made and activities undertaken across all divisions of an
organization, decentralized organizations are susceptible to duplicating efforts, which
results in inefficiency and increased costs.
 Incongruity in operations—when autonomy is dispersed throughout the organization,
as is the case in decentralized organizations, division managers may be tempted to
customize/alter the operations of the division in an effort to maximize efficiency and
suit the best interest of the division. In this structure, it is important to ensure the
shortcuts taken by one division of the organization do not conflict with or disrupt the
operations of another division within the organization.
 Each department/division is often self-centered (its own fiefdom)—it is not
uncommon for separate divisions within an organization to be measured on the
performance of the division rather than of the entire company. In a decentralized
organization, it is possible for division managers to prioritize divisional goal over
organizational goals. Leaders of decentralized organizations should ensure the
organization’s goals remain the priority for all divisions to attain.
 Significant, if not almost total, reliance on the divisional or department managers—
because divisions within decentralized organizations have a high level of autonomy,
the division may become operationally isolated from other divisions within the
organization, focusing solely on the priorities of the division. If divisional or
departmental managers do not have a wide breadth of experience or skills, the
division may be at a disadvantage due to limited access to other expertise.

Advantage of centralization:

The upper management at a centralized company will have complete control over
training, products they offer, and are more likely to ensure the company’s core
objectives and values are maintained. A centralized management style also has the
potential to improve the organization as a whole instead of just one smaller branch at
a time.

Centralized management usually keeps its external communication, like Business to


Business relationships, controlled down to just a few individuals, which helps keep
the company’s messaging consistent and more efficient. Centralization also helps
standardize products and materials, which in turn helps speed up preparation and
procurement.

McDonald’s is a prime example of centralized management and standardization. The


exact same number of pickles is put on each burger no matter where you are in the
world. Airlines do this too – you will get the exact same brand of bottled water on
every airplane in the same brand. Companies often centralize when they want to
improve the consistency of their product quality, and standardize production.

Disadvantage of centralization:

Centralized management strategies limit the creativity to the top management that
makes the majority of the decisions. This can lead to problems for the company
trying to adapt to a changing market. Heavily centralized organizations involved in a
fast-paced product and rapidly-changing industries are not able to react quickly to
changing demands of their customers.

An example of this retail stores selling trendy clothing. The sales and staff managers
often receive feedback from shoppers that would be vitally important for the
purchasing department to cater to the needs of the customer. This information needs
to be relayed through the line of upper management, usually through weekly or
monthly reports, putting a huge delay on the changes that impact the storefront.

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