Centralized Organization vs. Decentralized Organization

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Centralized organization can be defined as a hierarchy decision-making structure where all decisions and processes are handled strictly at the top or the executive level. Managers and employees lower in the chain of command are limited in the decision-making processes and can rarely implement new processes that veer “off course” without approval.

In a centralized organization, even those decisions regarding everyday operations and processes are generally decided upon by upper level executives or the business owner. Policies are put in place to ensure the rest of the company follows the direction of the executives.

On the opposite end of the organizational spectrum you will find a company that is operated based on a decentralized organization or rather a company that is operated on delegation of decision-making powers and flexible processes. In simple terms, executives or business owners assign tasks to management and employees and maintain a very open communication.

While management is given the power of freedom to “run their department as they see fit” they are still held accountable for production. The owner or company executives will rely heavily on management to instill and manage the processes and guideline they have set in place but will allow the manager to bring their own style to the mix.

So what are the benefits to each organizational structure you may ask? Depends on who you ask I suppose.

The benefits to a centralized organizational structure are clear cut and to the point because that’s exactly how the model is meant to be. There is little room for error which means the basic processes and more detailed operations are in place. Employees that appreciate this kind of structure don’t favor change and like knowing where they stand in the company.

The benefits to a decentralized organizational structure are more flexible and open to change. There is room for innovation and individual thought processes that could benefit the company as a whole or even one simple task. Employees of this type of environment favor change and like the fast paced environment that allows them to have input and feedback.