Centralised vs. Decentralised Structures
Business: Cambridge International GCSE (2027 Exams), topic 2.2.3
Centralised Organisational Structures
Centralised organisational structures have a few people at the top of the hierarchy who make all the important decisions in a business.
Benefits
- Centralised organisational structures usually have consistent decisions and company policies across all the business’ different functions.
- The people at the top of the hierarchy usually have the most experience and expertise. They also have a complete view of the organisation and what its overall goals are, so they may be best-positioned to make the best decisions.
Drawbacks
- Decision making can be slow because all decisions are made by a few people at the top of the business. The people at the top will end up with a lot of decisions that will take time.
- Because the people at the top of hierarchy are less involved in the day-to-day work (operations) in a business, then can become disconnected from reality. This can lead to bad decisions.
- Businesses often have lots of different functions, each needing different skills. The people at the top are unlikely to have specialist knowledge of all the different functions.
Decentralised Organisational Structures
In decentralised organisations, decision-making responsibilities are delegated by the top management to middle and lower level managers in the business.
Benefits
- Decisions can be made faster because communication has to travel through less layers before being implemented.
- Decisions are being made by people who have specialist knowledge and are closer to the day-to-day operations of the business.
Drawbacks
- Decentralised organisations may have inconsistent decisions made across different business functions.
- Some of these decisions may not be aligned with the overall aim or objectives of the business.
Test yourself on Centralised vs. Decentralised Structures
Who makes decisions in centralised organisational structures?
Which of these is not a characteristic of people at the top of an organisational hierarchy?
Compared to centralised organisational structures, in decentralised organisations...
Which of these is not a drawback of decision-making in decentralised organisations?