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Centralisation and Decentralisation


(the extent to which authority is delegated)



The main decisions are made by senior management, where little authority is passed down the organisation.



·      decisions are made by experienced people with an overview of the company.

·      ensures policies are consistent throughout the company.

·      ensures quick decisions can be made without consultation.

·      procedures such as ordering and purchasing can be standardised throughout the company, leading to economies of scale.

·      in times of crisis the firm may need strong leadership by a central group of senior managers.


disadvantages (mainly advantages of decentralisation)

·      centralisation reduces the input of the day to day experts, e.g., the shop floor staff, into the firms decision making.

·      it risks demoralising branch managers who may feel mistrusted or powerless.




Decisions are made by junior management as authority is passed down the organisation, thereby accepting less uniformity in how things are down.  There has been a trend in the 1980s and 1990s is to decentralise to provide greater flexibility.



·      reduces the stress and burdens of senior management

·      it can empower local managers encouraging them to be more innovated and motivated.

·      it reduces the volume of day to day communication between head office and the branches, therefore giving senior managers the time to consider long term strategy.

·      subordinates may have a better knowledge of local conditions affecting their areas of work.  This should allow them to make more informed well judged choices, e.g., salespersons have detailed knowledge of customers.

·      management at middle and junior levels are groomed to take over higher positions.  They are given the experience of decision making when carrying out delegated tasks (management development).

·      could allow greater flexibility and a quicker response to changes.  If problems do not have to referred to senior management decision making will be quicker.  Since decisions are quicker, they are easier to change in the light of unforeseen circumstances.



·      reduction in uniformity may unsettle customers who expect every Sainsbury’s to look the same or for every McDonald’s hamburger to contain just one slice of gherkin.

·      head office is in a position to measure the success of every aspect of the product and sales mix, therefore its instructions may prove more profitable than local manager’s intuition.



It is unlikely there will ever be complete centralisation or decentralisation.  Certain functions within a business will always be centralised because of their importance, e.g., decisions about budget allocation are likely to be centralised as they affect the whole economy.  The decision to distribute profits is also taken only by a few.  Some delegation is necessary in all firms because the limits to the amount of work senior management can carry out.  Even if authority is delegated to a subordinate it is usual for the manager to retain responsibility.



E-mail Steve Margetts