All organisations have to make daily decisions that vary from strategic, to operational in nature. The way these decisions are made is governed by whether the organisation is centralised or decentralised. All organisations have varying structures. Centralised and decentralised systems use opposite ways of delegating decision-making power, but in practice, none of these systems is perfect and neither can be declared the ultimate solution for all organisations.
In a centralised organisation, important information is mainly reserved for top management. The authors of "Business" say that this system concentrates power in the upper levels of the organisation. It is an autocratic, instead of a democratic, approach to decision-making: the top tier has all the power. In such a system, a limited number of people have all the power in the organisation and enjoy a wide spectrum of control.
Pros and cons
Although centralisation is a comparatively older system of management, it still has its benefits. Policies and objectives are clear, giving employees a fair idea of what the organisation expects from them. Topmost management is usually comprised of experts who are likely to make the best and speediest decisions, due to the limited number of people making them. It bypasses potential conflicts, and the time it takes to solve them -- but this system invests a great deal of responsibility in relatively few people, and is less effective as a solution to big problems.
In a decentralised organisation, decision-making power is held not just by upper-level management; it is shared with lower-level staff. In such a system, the top managers get a continuous input of facts, information and ideas from the reporting line. It is a more democratic approach towards running an organisation; everyone has some level of autonomy.
Benefits and drawbacks
Since the employees are involved in making decisions and setting objectives, they own those conclusions and objectives. Morale and motivation levels in a decentralised organisation are always higher than in a centralised one. Better choices can be made due to the firsthand knowledge available, but this system can also be risky if the dependent staff does not have the skills required for expert decision-making.
Top-tier management enjoys far-reaching control in a centralised organisation, while control is limited in decentralised organisations, due to delegation of authority to lower ranks. Centralised systems are more effective in small businesses, while decentralisation is preferable in larger organisations that handle multiple operations. Most organisations have found a way to strike a balance between the two; strategic and tactical decisions are made by top-level management, while operational decision-making is passed down to the lower ranks.