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What's The Difference Between Centralized And Decentralized Systems Of An Organization?

Management
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Question added by Rehan Qureshi , Financial Consultant , Self Employeed
Date Posted: 2014/01/21
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Rehan Qureshi
by Rehan Qureshi , Financial Consultant , Self Employeed

The difference between a centralized and a decentralized system of organization is that in a centralized structure all the decision making and authority are focused on the top tier of management. These few people are the ones that dictate company policy and make all the crucial decisions. A decentralized system, on the other hand, delegates authority throughout the organization and to all levels of management. Very often the methods used will depend on a variety of influences such as the size of the company and if it is scattered in a variety of places rather than all under one roof. In a huge organization with many diversifications, like General Motors, for example, there is more likely to be evidence of a decentralized system because it would be impossible and impractical for only a handful of people to ensure that every aspect of the operation was covered.   Advantages of centralization include an organization’s ability to be able to keep a tight grip on all aspects of the business. In a smaller business where centralization is possible, there is less chance that employees will be unaware of what is expected and what the common goals are because there is such a tight grip on all aspects of the organization from management.

 

An advantage of decentralization is that there tends to be faster decision making and an ability to adapt to the demographic area of production. It also means that lower level managers have the opportunity to gain valuable experience and develop more fully because there is more room to grow.

Mohammad Tohamy Hussein Hussein
by Mohammad Tohamy Hussein Hussein , Chief Executive Officer & ERP Architect , Egyptian Software Group

I see the difference (while maintaining effetivness) lies in implementing business process controls and collaboration systems to allow for decentralized decision making and maintain central accountability. In my opinion, decentralizing accountability disturbes effectivness.

Mohammed Diab
by Mohammed Diab , QA/QC Manager , CPP

Centralization/decentralization refers to how much decision-making authority

has been delegated to lower management levels. Few organizations could function

effectively if all decisions were made by a select group of top managers, nor could

they do so if all decisions were delegated to the lowest levels of the organization.

 

Organizations have traditionally been structured as pyramids, with authority

and power concentrated at the top and with relatively centralized decision

making. As organizational environments became more complex and dynamic,

many organizations began to decentralize decision making. Many executives now

believe that decisions should be made by those people with the best information

to make the decisions, regardless of their level in the organization.

More decentralization might be needed under one or more of the following

conditions:

• The environment is complex or uncertain.

• Lower-level managers are capable and experienced at making

decisions.

• Lower-level managers want a voice in decisions.

• Decisions are relatively minor.

• Corporate culture is more open to allowing managers to have a say in

what happens.

• The organization is geographically dispersed.

• Effective implementation of the organization’s strategies depends on

managers having more involvement and flexibility to make decisions

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