Difference between centralized and decentralized organizations

All organizations have to make daily decisions that vary from their strategy to how to function naturally. However, there is a great difference between centralized and decentralized organizations, which you can learn about in the following informative post.

The way these decisions are made is governed by whether the organization is centralized or decentralized. Also, all organizations have different structures.

The centralized and decentralized systems use opposite ways to delegate decision – making power, but in practice, none of these systems is perfect and neither can be declared the best solution for all organizations.

What is Centralization?

In a centralized organization, important information is reserved primarily for managers. The authors of Business magazine say that this system concentrates power at the top levels of the organization.

It is an autocratic approach, rather than a democratic approach to decision-making, where the top level has all the power.

In such a system, a limited number of people have all the power in the organization and enjoy a wide spectrum of control.

The Advantages and Disadvantages of Centralization

Even though centralization is the comparatively oldest system of management, it still has its benefits. The policies and objectives are clear, giving employees a clear idea of what the organization expects of them.

The top management is generally composed of experts who can make better and faster decisions because of the limited number of people who take them.

Potential conflicts and the time it takes to resolve them are avoided, but this system puts a large part of the responsibility on relatively few people, and is less effective as a solution to large problems.

What is decentralization?

In a decentralized organization, decision-making power is held not only by upper management, but is shared with lower-level personnel.

In this system, senior managers receive continuous input of data, information, and ideas from the reporting line. It is a more democratic approach to running an organization, where everyone has a certain level of autonomy.

Benefits and drawbacks of Decentralization

Since employees are involved in making decisions and setting goals, they own those conclusions and goals.

Moral and motivational levels in a decentralized organization are always higher than in a centralized one.

The best options can be made due to the possibility of first-hand knowledge, but this system can also be dangerous if the dependent personnel do not have the necessary knowledge for expert decision-making.

Comparison between Centralization and Decentralization

Top management enjoys a higher level of control in a centralized organization, while control is limited in decentralized organizations, because of the delegation of authority to lower levels.

Business systems are most effective in small businesses, while decentralization is preferable in large organizations managing multiple operations.

Most organizations have found a way to strike a balance between the two; the strategic and tactical decisions are made by senior managers, while making operational decisions is passed to lower levels.

The benefits of keeping employees trained in a centralized company

The majority of centralized companies today have fully trained people to carry out their daily activities. These people work under the elements of normative leadership, thus managing to do everything in an optimal way.

Therefore, their commitment and performance will be crucial for the company, these people are generally heard and understood very easily by other co-workers. By keeping employees trained at all times, you will ensure future success for everyone.

Another of the benefits that a centralized company takes, is that in many respects, improve personal image of it. Similarly, this will motivate workers to keep going, since they are part of a large company.

By implementing professional training courses within a centralized company, there will be greater chances of competitiveness among the workers of the same.

This will bring benefits for them, since with more knowledge acquired, the more likely they will be to remain in their job or better yet, to move up to another position within the company.