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Factors influencing centralization and decentralization of decision making authority


Date Posted: 8/11/2018 11:31:39 AM

Posted By: Faimus  Membership Level: Gold  Total Points: 1012

Centralization of decision making authority refers to a situation where decision making authority is retained by the top managers. Top managers are basically the policy makers in an organisations who are in charge of and responsible for the performance of any given organisation. They are the ones who formulate strategies, come up with plans of implementing the strategies and preside over the implementation of the strategies guiding the actions of their subordinates. On the other hand, decentralization of decision making authority refers to a situation where decision making authority is delegated to subordinates.
Decision making authority refers to the discretion to make decisions without having obtain permission from any other member of the organisation. This authority is utilized by the superiors in an organization to get activities under their jurisdiction done in order to achieve the goals of the organization. In addition, delegation refers to a situation where a superior gives decision making authority to a subordinate in order to accomplish a given task or job activity.
Decentralized and centralization of decision making authority are both concepts which are employed by organizations in coming up with suitable organizational structures. Using these concepts, an organisation may therefore employ a decentralized organizational structure or a centralized organisational structure. However most organizations prefer to employ both structures in order to curb the shortcomings associated with employing either of the organizational structures. There are several factors which are considered by the management of a given organization in deciding which of the two organizational structures to employ.

Some of those factors are explained in detail below.

The first and one of the major factors is the size of the organization. The size of the organization may refer to the number of branches the organisation has or even the number of its employees. The size

of an organisation will determine the urgency of decision making and hence determine whether to employ a centralized organisational structure,a decentralized one or both. Small organizations that have only one branch employ the centralized organisational structure. This is because this organisations have a relatively small number of employees and involves relatively few job activities. This therefore eliminates the need for a large number of managers and hence a centralized organisational structure is preferred. Large organisational such as multinationals which have several branches in different parts of a country, different countries or even continents employ a decentralized organizational structure. This is so as to ensure timely decision making to keep the organization running and ensure favourable competition with its competitors.

Another factor is the proximity of the branches of the organization. Some organizations are localized; that is their branches are found in the geographical location or country while others have branches in different countries or even continents. The organizations that have branches in the same country or geographical location may employ the centralized organisational structure. This is because any policies, strategies and plans agreed upon by the top managers or the board of management can be easily and timely relayed to the branches. On the other hand, multinationals employ a decentralized organizational structure. Take the example of a multinational that distributes its products and has branches in three continents: Asia, Africa and Europe. If the head office of this multinational is found in Europe and it employs a centralized structure, then all decisions concerning any issues that affect any of the branches would have to be consulted with the top management in Europe. This would induce a time lag into decision making which would negatively impact the organization. This is basically why multinationals employ a decentralized organizational structure. A decentralized organizational structure ensures timely decision making, increased interest and enthusiasm in the decision making process and the decisions made are well adapted to the local conditions since the decision makers are well conversant with the local situation.

Every day, decisions are made in organizations. These decisions vary in nature where some are about the policies and objectives of the organization while other relate the operations of the organization and others are about the routine activities of the organization. The nature of the decision to be made is one of the factors that determine whether to employ a decentralized or centralized organisational structure. There are some decisions which are considered very important while the are others which are fairly important to organizations. The every important decisions are those that involve high risks such as the production of a new product by a manufacturing company, high costs such the purchase of a new warehouse and those which have great implication on the organization such as relocation. These decisions are only made by the top managers since they require a lot of accountability in case events do not conform to plans or they negatively impact the organisation. The fairly important decisions are those that involve routine and low risk activities. This activities are therefore delegated to subordinates since they do not far reaching consequences on the organisation.

The decision to employ a centralized organisational decentralized organizational structure will also depend on the availability of the required personnel. When a new position is created in an organization there are qualifications which are matched with the position. The applicants to the position must have those qualifications. To fill the new position, the organization may decide to invite applicants through a vacancy announcement or promote a member of their current staff to the new position. This is what happens when an organisation decide to decentralize some of the job activities. The person assigned to the position must be trained, skilled, competent, knowledgeable and experienced to handle the issues of the decentralized units. If the organization is able to get a person with the required qualifications to fill the position then decentralization is possible. However if the organization is unable to get a suitable candidate, then centralization remains in place.

In addition, the communication facilities available may also determine the type of organizational structure to be employed in an organization. In a case where the communication systems are efficient and up to date, then the top managers find it relatively easy to relay any information to their subordinates as do the subordinates also have ease in relaying their opinions, views, ideas and any complains to the top management. Thus, with an effective communication system, a centralized organisational structure can be effectively employed. However where the technologies used in communication are not as efficient, decentralization is employed. This is because a faulty communication system will put a strain on the time and attention of the top managers and therefore significantly reduce the effectiveness and efficiency of a centralized organisational structure.

Apart from the internal factors there are also external factors that determine the type of organizational structure to be practised. The main factor is government regulation of private business.
All these factors influence the employment the decentralized or centralized organisational structure. The employment of either of the organizational structures is only practiced in a few organizations with most of the organizations preferring to employ both.

Next: Advantages of a decentralized organizational structure over a centralized one.
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