Centralised versus decentralised structures
A business structure can be classed as being centralised or decentralised in terms of power and decision making.
In a ‘centralised’ business, decision making and authority rests with senior management at the centre of the business. In a ‘decentralised’ business, this authority is delegated further down the business, away from the centre.
In centralised organisations, most decisions are made by senior managers and then passed down the organisational structure to be actioned.
In decentralised organisations, authority is delegated down the organisational structure, which can reduce the speed of decision making.
Click on the buttons below to learn more about the advantages and disadvantages of centralised/decentralised structures.
Centralised structure
Advantages:
- It is easier to put common policies/processes in place for the whole business
- No areas of the business are allowed to become too independent
- It is easier to co-ordinate and control budgets, projects, etc
- Decision making is quicker
Disadvantages:
- The organisation has extra layers of hierarchy which makes it more bureaucratic
- Motivation can be reduced, due to a lack of authority down the hierarchy
- The organisation can be less flexible and able to adapt quickly in response to feedback
Decentralised structure
Advantages:
- The organisation is able to respond more quickly to customer needs/feedback
- Staff motivation levels are improved, as they are given more authority for decision making
Disadvantages:
- There is less strategic/senior management control over decision making
- More difficult to apply consistent policies/processes
- Lack of strong senior leadership/authority when needed
- More difficult to achieve financial control, which can lead to poor cost/budget management