Centralized organizational structure concentrates decision-making power at the top, while decentralized structures delegate authority along a chain of command. Centralization can lead to efficiency but may cause stagnation and disconnect between executives and workers.
A centralized organizational structure is an approach to decision management that concentrates power at the top of a hierarchy. A small number of people have the ability to make decisions and are senior members of the business or organization. This contrasts with a decentralized organizational structure, where higher powers delegate authority along a chain of command to allow employees at many levels to make decisions. There are advantages and disadvantages to both structures that can be considered in the course of developing or modifying an organizational structure.
This approach can be seen everywhere from small businesses to large corporations. An entrepreneur with only a few employees may prefer to make all decisions for the business in a centralized organizational structure. Employees must discuss any planned activities or concerns with the owner and cannot make their own decisions except in very controlled circumstances. This allows for greater control over business operations.
In large companies, the centralized organizational structure is generally combined with a very broad and highly articulated hierarchy. As people move up the hierarchy, they have more authority and more connections with the people who can make decisions. At the top are the handful of people with the most power over the company’s operations. These can be members of a board of directors or chief executive officers, depending on the business organization.
One benefit of the centralized organizational structure is efficiency. When decisions need to be made, they are made quickly, because no consultation is needed. However, the disadvantage of central control is that it may take a long time for problems to reach the people who can make decisions. They are often overworked and it may take some time for an issue to become known. In a decentralized structure, autonomy at lower levels can allow for quicker resolution of minor issues because they don’t need to escalate through a series of levels.
Another potential flaw of the centralized organizational structure is stagnation. A company’s senior executives may be out of touch with workers or lagging behind on developments in the industry. When only people make decisions, it can be difficult for a business to move forward and drive progress. This structure can also contribute to a more hidden culture where employees feel less valued. Decision-confident people tend to feel more connected to their employers and may be more inclined to stick around for the long term.
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