Centralize Decentralize

Which is the better organizational structure, centralized or decentralized? Aside from the obvious, "It depends", each has its advantages. Problem is, the advantages wear out. Thus most organizations move along a continuum that occasionally reverses direction.

• Centralization enhances control over processes and people. For a while at least. Usually the move to centralize is a reaction to the edges of the organizational structure unthinkingly making decisions that harm the whole. This response is common after real or potential public relations disasters. A need to curtail budgets and realign staff will often be answered by reducing layers and increasing the control expected from managers. Lines of communication will be made clear; work structures will be highly defined.
• Decentralization enhances creativity and personal responsibility. An organization cultivating innovation must let individuals and teams at all levels explore new ideas and take decisions. People who enjoy receiving only broad direction with regards to goals respond well in a decentralized organization. With good leadership, budget efficiency can improve under decentralization because all staff can find and apply savings or can recommend new revenue streams.

Large organizations, by definition bureaucracies, almost always tend towards forms of centralization. Very small organizations, usually run by the owner or creator, also tend to be centralized. The best organizations combine centralization and decentralization by allowing pockets of creativity within the necessary structures of management control.