Centralization and Decentralization in Organizational Structure

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Introduction

Organizational structure is the way in which an organization arranges its employees. This enables tasks and targets to be met. When a company is smaller, a detailed multi-layer structure may not be needed, but in some larger organization decisions must be made about the assignment of multiple tasks.  Procedures are put in place so that responsibilities for the different functions are assigned correctly. My Organization workforce consists of 27,000+ employees globally, and we sell products in over 100 countries around the world, denoted by the light blue colour.

In addition, my organization has sales reps and offices all over the world.  The variety of these operations allows my company to better appreciate local needs and to build solid working relationships with our clienteles.  Having enthusiastic employees who are involved in the day-to-day goings-on in each area helps our clients deliver the best care for their patients.

My company’s head office is based in Kalamazoo, Michigan, USA.  My organization has 18 divisions and regional head office’s that are situated all over the world, with a further 40 manufacturing and R&D locations also located around the globe.

TRADITIONAL ORGANIZATIONAL STRUCTURE

All company structures are unique, but company structures are intentionally designed or develop to enable the organization to achieve its goal. These typically grow and evolve as the organization does over a period of time.

Researchers generally identify four basic decisions that managers must make as they develop an organizational structure, although they may not be explicitly aware of these decisions. First, the organization’s work must be divided into specific jobs. This is referred to as the division of labour. Second, unless the organization is very small, the jobs must be grouped in some way, which is called departmentalization. Third, the number of people and jobs that are to be grouped together must be decided. This is related to the number of people that are to be managed by one person, or the span of control—the number of employees reporting to a single manager. Fourth, the way decision-making authority is to be distributed must be determined. (Droege, 2018)

When separating jobs into different departments management can decide the criteria on which to group them. The most common way of doing this is by function and this is normally carried out by the manager and is based on the number of people under the mangers supervision. The extent to which authority is spread throughout the company can vary but in a traditional structured organization normally the final decision-making is taken by those highest in the vertically structured hierarchy.

A traditional model of organizational structure can be represented by an organizational chart. It is either a pyramidal or hierarchical structure with a CEO /president or owner at the top, followed by a smaller number of vice presidents or managers with several more layers of mid management below this with most employees underneath at the bottom.

Departmentalization

FUNCTIONAL DEPARTMENTALIZATION

A benefit of grouping jobs together that possibly have similar skills, knowledge and resources is that it allows the tasks to be completed efficiently and helps develop a greater understanding. On the other hand, a disadvantage of functional groupings is that it can cause people with the same knowledge and skills to only focus on their own department and this leads to difficulty in appreciating what is important to the organization as a whole (Droege, 2018)

GEOGRAPHIC DEPARTMENTALIZATION

Organizations that are spread out over a large geographical area should see added benefits when they become regionalised so that they can be managed in clustered groups more efficiently. In bigger organizations separation makes centralized direction more difficult. Certain key characteristics of a region may make it more beneficial to promote a more localised concentration. An example of this would be marketing a product in America may have different requirements than marketing the same product in India. (Droege, 2018)

PRODUCT DEPARTMENTALIZATION

Bigger organizations with multiple products are often arranged according to product. Everything required to make a product or group of similar products are arranged together. When products are arranged like this then the most senior manager of the product group typically has significant self-governance over the whole operation. The benefit of this structure is that the employees in the grouping can concentrate more on the needs of their specific product line. When this happens, they tend to become specialists in its progress, manufacture, and supply. One of the drawbacks of this method can be the duplication of resources. (Droege, 2018)

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Difference Between Centralization and Decentralization

Centralization and Decentralization are the two types of structures, that can be found in the organization, government, management and even in purchasing. Authority Centralization means the decisions that are made are done so at the highest level of an organizations management tier. Decentralization refers to authority distribution from the higher levels of management to lower levels. (Surhbi, 2015)

To determine whether a company is either centralized or decentralized can depend on the extent of the decision-making power at the mid to lower levels of the management layers and also the decision-making authority location. These two ways are at a constant wrangle over which one is better. (Surhbi, 2015)

Some organizations, depending on size, feel that centralization is a better fit for them where as larger organizations are more in favour of decentralization. It has been observed, in more recent times, that neither absolute centralization or decentralization is possible, so organisations can be equipped with a hybrid model to incorporate both strategy’s. Complete centralization is not feasible because it signifies that every single decision must be made by either the very top layer of management or by the head of the organisation. Meanwhile absolute decentralization is an indicator of very little control over the actions of the subordinates. So ideally a fine balance between these two should be maintained. (Surhbi, 2015)

Comparison Chart

BASIS FOR COMPARISON

CENTRALIZATION

DECENTRALIZATION

Meaning

The retention of powers and authority with respect to planning and decisions, with the top management, is known as Centralization.

The dissemination of authority, responsibility and accountability to the various management levels, is known as Decentralization.

Involves

Systematic and consistent reservation of authority.

Systematic dispersal of authority.

Communication Flow

Vertical

Open and Free

Decision Making

Slow

Comparatively faster

Advantage

Proper coordination and Leadership

Sharing of burden and responsibility

Power of decision making

Lies with the top management.

Multiple persons have the power of decision making.

Reasons

Inadequate control over the organization

Considerable control over the organization

Best suited for

Small sized organization

Large sized organization

THE FUTURE

 Creating big global company’s through company acquisitions or mergers has become more common and increasingly vital for these company’s value and growth strategies. Among organizations of all sizes, concepts such as lean or just-in-time are impacting the management views about their organizational structure. (Droege, 2018) 

COMMUNICATION

DEFINITION

Organizational communications refer to exchanges and communications between employees or colleagues in the organization. (Cutlip, 2006)

(Deetz, 2001) defined two ways of looking at and classifying organizational communications with the first approach being where the organization is a container and communication occurs within it. In the second way it views internal communications a way to explain and describe the organization. This makes communication a way which all employees can build values and develop the culture and share information. This process is a combination of people, messages, meaning, practices and purpose (Shockley-Zalabek, 1995)

WHY INTERNAL COMMUNICATION MATTERS

Communication is one of the important activities an organization can invest in. Communication can aid both individuals and groups organize activities to attain targets. (Nelson, 2008)

Internal communication lets employees know about important information about a variety of different things including structure changes and anything that relates directly to their jobs. Good Communication can both motivate and engage employees and this build trust. It can provide a way for employees to express emotions and share in accomplishments. Communication can be a good basis for employees to understand their organization, what it stands for and what it means. (Berger, 2008)

COMMUNICATION NETWORKS

A network represents how communication flows in an organization. Networks can be both formal and informal. In a formal communication network, messages travel through official pathways (e.g., newsletters, memos, policy statements) that reflect the organization’s hierarchy. Informal communications can be such ways as the grapevine and include opinions or rumours and employees believe Informal communications can be more genuine than the organizations official communication. Findings, in regards the effectiveness of communication, frequently reveal employee discontent with both upward and downward communications. (burton, 2006)

MEASUREABLE BENEFIT

There is evidence to suggest that effective organizational communications can help increase productivity, job satisfaction and morale. It can also increase revenues and quality (Cutlip, 2006)

Examples of this include:

You can improve individual performance up to 50% by improving the timeliness, accuracy and quality of information that employees receive about customers. (Boyett, 1998).

A positive communication policy when used effectively can strengthen employees’ relationship with their organizations, which in turn can improve an organization’s financial performance through sustained success. (Smidts, 2001)

Effective communication can grow a culture of sustained engagement which is crucial to build a strong organization. (Grates, 2006)

Conclusion

My organisations structure is so big with so many employees that there must be decentralized command to function with divisional leaders and headquarters feeding info back to the highest level to be able to let them make more strategic decisions. This can cause a disconnect between management levels and I would recommend that the most senior levels try to be seen more through modern technologies, such as skype townhall meetings, more frequently to enable all employees to understand why certain decisions are being made.

My own organization has many forms of communication both modern and traditional. The more modern way being social media with our own company version of Facebook called Connect. This lets every employee know what’s going on all over the world and this can help to avoid duplication of tasks and is a great way to show recognition to colleagues doing a good job. Everyone is encouraged to join, and I can see many mid to large company’s following the same path as people want information instantly nowadays. This has improved our communication company wide and I would recommend any of the employees to join.

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Cutlip, C. a. B., 2006. Effective Public relations. NJ: Pearson.

Deetz, 2001. Corporate foundations. In: The new handbook of organizational communication:Advances in Theory, reasearch and methods. Thousand Oaks: Sage publications, pp. 3-46.

Droege, S. B., 2018. Reference for buisness. [Online] Available at: https://www.referenceforbusiness.com/management/Ob-Or/Organizational-Structure.html[Accessed 7 December 2018].

Grates, 2006. Are yur employees working with the volume off. [Online] Available at: http://www.edelman.com/expertise/practices/employee change.documents/edelman memotoManagement vol1issue4.pdf[Accessed 7 dec 2018].

Nelson, H. a., 2008. Applied organizational communication. New York: Lawerence Eribaum.

Seitel, 2004. The practice of public relations. New jersey: Pearson Prentice Hall.

Shockley-Zalabek, 1995. Fundamentals of organizational communications. 3rd ed. New York: Longman.

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Surhbi, 2015. Key differences. [Online] Available at: https://keydifferences.com/difference-between-centralization-and-decentralization.html[Accessed 8 Dec 2018].