Advantages of Decentralization
Advantages and Disadvantages of Centralization
Under certain conditions a centralized organizational structure can be advantageous. In a centralized organization structure, the centralized authority may have a better perspective on the big picture of the organization and how the subunits of the organization fit together and this may make centralized authority optimal. If it is a young company and a small company it may be better to have centralized authority. And finally, if the upper management does not have much confidence in the lower level employees’ ability to make and execute decisions properly, then a centralized organization structure would be beneficial.
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On the other hand, if the company is large and mature having a centralized organization structure could hinder operational efficiency. Also, if lower-level employees and managers have specific ground-level information that can enhance operational performance, then a centralized organizational structure could be the wrong design. And finally, if using a centralized structure results in senior managers getting tied up in details at the lower level of operations, then perhaps a centralized organizational structure is hindering the company’s performance.
In addition to choosing the right organization structure for your company, learn the 7 Habits of Highly Effective CFOs to find out how you can become a more valuable financial leader.
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