Centralisation and Decentralisation: Advantages & Disadvantages
There are two types of organisation structures that companies can adopt, centralisation and decentralisation. Centralisation is where most authority and decision-making is concentrated within a small group at the top of the company. Decentralisation is where authority and decision-making is spread out across different levels of the company. Each type of organisation structure has its own advantages and disadvantages. Centralisation and Decentralisation: Advantages & Disadvantages.
Advantages of centralisation
- Quick decisions can be made as there is less bureaucracy involved.
- There is greater control over the company as fewer people have power.
- Communication is easier as information only needs to flow through a few channels.
Disadvantages of centralisation
- Lower level employees may feel disenfranchised as they have little say in decision-making.
- If the top level employees are not competent, this can have a negative cascading effect on the whole company.
- There is less opportunity for innovation as decisions are made by a smaller group of people.
Advantages of decentralisation
- Lower level employees feel more engaged as they have a greater say in decision-making.
- There is more opportunity for innovation as decisions are made by a wider group of people.
- The company can be more agile as decisions can be made quickly at different levels.
Disadvantages of decentralisation
- There may be duplication of effort as different parts of the company work on similar projects.
- There may be confusion over who has the ultimate authority to make decisions.
- Communication can become more difficult as information needs to flow through many different channels.
Centralisation implies that the vast majority of job-related decisions are not made by those who carry out the work, but by people higher in the company. Louis A. Allen defines centralisation as “the systematic and constant allocation of authority to specific locations within an organisation.”
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Limitations of Centralisation
There are several reasons why a company may not want to centralise its decision-making authority:
- If the company is large, it may be difficult for upper management to have an accurate understanding of what is happening at lower levels. This can lead to poor decision-making.
- Centralisation can lead to bureaucracy and red tape as decisions need to go through multiple channels before they are implemented. This can make the company less agile and responsive to change.
- Lower level employees may feel disengaged from the company if they have no input into decision-making. This can lead to low morale and high turnover.
Decentralisation implies that job-related decisions are made by those who carry out the work, rather than by people higher up in the company. This means that authority and responsibility are distributed across different levels of the organisation.
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