Notes

Centralized Vs. Decentralized Organizational Structure


An organizational structure is the outline of a company’s framework and guidelines for managing business operations. Small business owners are usually responsible for creating their companies' organizational structure, which is usually an extension of the owner’s personality, management style and characteristics. Two types of organizational structures are found in the business environment: centralized and decentralized. Each structure offers advantages and disadvantages for business owners.

Definition
Centralized organizational structures rely on one individual to make decisions and provide direction for the company. Small businesses often use this structure since the owner is responsible for the company’s business operations. Decentralized organizational structures often have several individuals responsible for making business decisions and running the business. Decentralized organizations rely on a team environment at different levels in the business. Individuals at each level in the business may have some autonomy to make business decisions.

Advantages
Centralized organizations can be extremely efficient regarding business decisions. Business owners typically develop the company’s mission and vision, and set objectives for managers and employees to follow when achieving these goals. Decentralized organizations utilize individuals with a variety of expertise and knowledge for running various business operations. A broad-based management team helps to ensure the company has knowledgeable directors or managers to handle various types of business situations.

Disadvantages
Centralized organizations can suffer from the negative effects of several layers of bureaucracy. These businesses often have multiple management layers stretching from the owner down to frontline operations. Business owners responsible for making every decision in the company may require more time to accomplish these tasks, which can result in sluggish business operations. Decentralized organizations can struggle with multiple individuals having different opinions on a particular business decision. As such, these businesses can face difficulties trying to get everyone on the same page when making decisions.