Centralization
and Decentralization
Definition:
The link of department and jobs within the
organization.
Centralization
Refers to the retention of authority to make decisions by top management.
Ø High
formalization, defined as written documentation of rules,
regulations and procedures, which guide employee behaviour and organizational decision-making.
Ø Standardization
refers to the degree to which behaviour variation is allowed in a job.
Ø
Employee’s
follow uniform procedures and policies which are formulated and enforced by
higher management.
Ø Rules
and regulations direct employees to do certain things in specific ways at
certain times.
Ø Make
employee’s tasks explicit and they determine the nature of superior-subordinate
relationships.
Ø Adds
more control by adding more layers to the chain of command.
Ø Number
of managers and administrators grow faster than the number of employees engaged
in production and customer services.
Ø Most
Managers prefer fixed accountability and responsibility for decision-making.
Decentralization
Is the process of pushing authority down the
organizational hierarchy so that decisions are made as close to the Origin of
organizational problems as possible?
Goes against the instincts of managers as they try to
reduce risk and uncertainty.
Driven by
1) shareholder
demands for higher returns
2) increasing
global competition
3) more
sophisticated repeat buyers who demand higher quality products and service
4) technological
advances that support highly delayer
structures
Other driving forces
1) On
basis of products, service and markets while centralize function and
organizational processes (e.g. accounting, purchasing Information system, Human
resources)
2) If
Centralization proves to costly they outsource.
3) Competitors
aggressive about lowering costs, stealing market share of rivals.
|
Strengths |
Weaknesses |
|
Meshes well with rapid change and fast company
growth. |
Innovation is often restricted to projects or
specialized programs. |
|
High awareness for projects, programs or products |
Difficult to allocate pooled resources such as
computer analysis |
|
A high task focus which yields control over time,
financial and human resources |
Co-ordination problems in joint functions such as
purchasing. |
|
Customers can determine task responsibilities and
project personnel are highly responsive to their needs |
Deterioration of broad managerial skills and
potential for loss of technically skilled employees |
|
Concurrent multiple tasks can be coordinated across
functional departments |
Jurisdictional and priority disputes |
|
|
Possible neglect of high-level coordination to ensure
organizational effectiveness. |
One company working closely with another company to
produce goods and services.
Two common approaches are conglomerates and strategic
alliances.
Conglomerates
A holding company that acquires many other companies
having entirely different business strategies and operate in diverse
industries. The acquisition of
companies because they are:
1) Undervalued
2) Financially
distressed
3) Likely
to grow but cannot because they have limited capital.
Managed through a system of autonomous subsidiary
presidents who report to sector or group Vice-presidents who report to the
conglomerate’s CEO.
Is a form of inter Organisational design. A co-operative agreement between two firms
that falls short of a merger or full partnership.
Ø
Joint product development or research
Ø
Production technology sharing
Ø
Joint use of production facilities
Ø
Marketing of one another’s company’s products
Ø
Collaborating to manufacture component or to assemble
finished goods
A method for companies in different countries in the
same industry to compete on a global scale while maintaining their
independence.
Ø
Formalization of rules and regulations often promotes
job dissatisfaction except for employees who have very strong needs for job
security, which is provided by adherence to well-understood rules and
regulations.
Ø
High formalization is a special problem for employees
who must deal with customers and suppliers.
If a company has rules which prevent salesmen from handling customers
complaints directly, both customers and salesmen grow frustrated.