Organization structure- centralization and decentralization

Introduction1

Centralized organizational structure1

Cisco Systems. Inc- centralized organizational structure2

Decentralized organizational structure2

Johnson & Johnson-Decentralized organizational structure3

Optimal conditions for decentralization3

Organizational structure and strategy implementation4

Conclusion4

Organization structure- centralization and decentralization

Introduction

An organization must decide that how authority to take decisions is allocated to the different levels in the organization. Different organizations may have similar organizational chart, but they may differ in the delegation of authority (Madura, 2007). In one organization middle level managers may be having the authority to make a key decision while, in other organization, the decision making authority rests with the senior level managers. An important decision in developing an organizational structure is to decide that how the authority will be delegated (Gitman & Mc.Daniel, 2009). The choice is between a centralized or decentralized structure.

Centralized organizational structure

Centralized organizational structure is one in which the formal decision making authority lies at the top level of the organization (Gitman & Mc.Daniel, 2009). Middle managers are accountable to accomplish everyday chores, but they cannot make any decision (Madura, 2007).

A centralized structure abolishes redundancy throughout the organization; thus it helps in cost saving (Gitman & Mc.Daniel, 2009). In a centralized structure operations throughout the organization can be controlled strongly. It also ensures standardization of processes, guidelines and practices (Montana & charnov, 1993). However, the centralized structure also has its downsides. A centralized organization cannot respond to the demands of consumers quickly. Leadership and decision making abilities of employees at the middle and level cannot be developed (Gitman & Mc.Daniel, 2009).

Cisco Systems. Inc- centralized organizational structure

Earlier Cisco Inc was structured in product and geographical units having individual operational teams. With that structure, the company's operational costs were more than 50% of its overall sales. The company realized that it must have transformation in its structure. All the functions were then centralized. Whenever the company now goes in new markets or introduces new products, managers directly reports to the functional head. In this way, redundancies in operational and functional areas are eliminated (Gitman & Mc.Daniel, 2009). Cisco thus adapted a centralized structure with decision making authority resting with the senior level management.

Decentralized organizational structure

In a decentralized organizational structure the authority to make a decision is pushed down to the middle and lower level employees and managers. The authority is delegated down the organizational chain of command (Gitman & Mc.Daniel, 2009).

A decentralized organization structure stimulates the speed and implementation of decision making. Decision making can be ...