Question

Explain how centralized and decentralized companies differ. What are the advantages and disadvantages of each

Answer 1

Centralized structure in companies Where decision making take place at top level management (whether decisions are major or minor)

Advantages

• Easier to coordinate and control from the center.
• Decision making process become easier and quicker (Since one person is authorized to take decision,no need to take approval from different authorities)
• Common practices and policies are implemented in entire organisation.

Disadvantage

• Lower level management do not get motivated.
• Lower authority are more closer to customers so they are better in taking minor decisions (Routine decision)
• Not suitable for large organisation.
• Always possibility of misuse of power by top management.
• It can overburdened top level managers

Decentralization In this structure lower level management is authorized to make routine decisions

Advantages

• Suitable for large organisation.
• It facilitate development of lower management.They get good opportunity to enhance their skill and talent.
• Lower level management feel motivated and contribute in achievement of goals of organisation.
• It lighten the burden of top management.

Disadvantages

• Possibility of misuse of power by lower level management.
• Top management lose their control
• Because of weak financial position, it is not possible for company to appoint such skilled employees.
• It creates problem of coordination.
• Not suitable for small firms.