This article faces a situation where the chief executive of a European equipment manufacturer recently faced a tough decision whether to centralize or to decentralize, this is a big dilemma that most companies has to deal with at a point of their business, so should they centralize or to decentralize?
To help answer this question i will be looking at both. To begin with centralization is generally organized around a core business unit with a strict hierarchy. Several layers of management typically delegate tasks and set policy. Since those managers have full knowledge of what’s happening in the organization, they can maintain precise control over budgets and products, and can ensure that no risks or projects are undertaken without their knowledge. Moreover employees are not included in decision making because lower level employees lack the certifications needed for decision-making.This allows the company to take decisions quickly and with less risk however there is no room for creativity or new ideas from lower level employees.
On the other hand, Decentralization allows organizations to take advantage of division of labor by sharing decision-making across the organization. It also empowers employees and allows them to improve their performance by being able to act to improve deficient or inefficient areas immediately without approval from the top of the organization. Moreover decentralization will allow for more creativity, however it can be very time consuming and have a very high risk level.
Finally, I recommend the chief executive to use a decentralized system, as this system has the advantage that decision making is closer to the people making and understanding the decision.