In a centralised organizational structure, decision-making authority is concentrated at the top, and only a few people are responsible for making decisions and creating the organisation policies. In a decentralised organisation, authority is delegated to all levels of management and throughout the organisation. An organisation degree of centralisation or decentralisation depends on the extent of decision-making power that is distributed throughout all levels.
An organisation structure and its degree of centralisation or decentralisation depends on a number of factors, including the size of the organisation and its geographic dispersion. In a very large and diversified organisation, it is unlikely that a handful of people will possess all the resources to achieve all goals and objectives of the enterprise. As a result, it becomes impractical to concentrate power and decision-making authority at the top. Similarly in a geographically-dispersed organisation, a centralised approach will not be the most efficient, as the people with the most authority will be unable to directly supervise operations on a day-to-day basis.
Advantages of Centralization
The most apparent advantages of centralisation are an organisation ability to closely control operations, provide a uniform set of policies, practices and procedures throughout the organisation, and better use the knowledge of centralised experts. In a small organisation, operations are likely to be not as diversified, and top management may realistically possess the skills and expertise required to manage all facets of business. In such a centralised environment, actions of individuals are also better aligned with management's prescribed policies, as the rules emanate from a single source, and there is little ambiguity.
Advantages of Decentralization
Decentralisation is a common trait of forward-thinking organisations. A decentralised organizational structure allows faster decision-making and better adaptability to local conditions and context. In a large organisation, a high degree of centralisation would lead to inefficiency as all actions would have to be approved and cleared by top management. Decentralisation also enables an organisation to better adapt to conditions by delegating authority to those who are physically present and active in a particular project or operation. Another important advantage is management grooming. In a decentralised organisation, managers at lower levels gain relevant experience, which improves quality of human resources.
The extent of delegation distinguishes a centralised organizational structure from a decentralised one. The first task in delegating is to choose appropriate delegates, based on a fair and objective evaluation of individual skill sets, and their relevance to responsibilities. Efficient delegation happens when delegates clearly see the outcome of their efforts, and how it fits into the organisation and its goals. Modern business thinking also contends that delegates should be aware of performance measures and expected results, and should be recognised for achievements.
Delegation & Empowerment
Delegation is a traditional management model concept, whereas empowerment belongs to the new management model, and both are integral parts of a decentralised organisation. Delegation only thrusts authority on individuals, and overlooks aspects such as motivation and will to achieve the task. Empowerment on the other hand replaces authority with ownership, and considers unique capabilities of the individual, such as initiative and efficacy, rather than just roles and responsibilities.