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First off, minus 10,000 life points from me for taking so long to reply to your comment. I won't make excuses but instead will transfer these 10,000 life points to you immediately.
It's my belief there is first a centralizing tendency in organizations. As organizations grow larger and larger, people emerge who want power and make their way to the top of the organization and concentrate power there. In some organizations, this power grab is fought, but in many it is a quiet coup de tat.
Then, eventually, the realization that all that power should not be concentrated in the hands of the few, and the realization that it affects performance negatively contribute to a desire to decentralize.
So in my eyes, there is a cycle of centralizing, decentralizing, centralizing and so on. The way to judge whether an organization is trending towards centralizing or decentralizing is to see where the organization is in its growth. If it is a small organization, power will be decentralized. As the organization grows, power will centralize and then decentralize.
Over the past few decades, we've had an explosion in executive scandals and corruption. Thus, we're now entering a period where organizations are looking to decentralize to prevent the mistakes of our recent past.
I hope that answers your question, if not feel free to follow up via this post or e-mail ( hit the contact button in the top menu bar). Again, my sincere apologies for letting your comment fly under my radar for such a long time.
In fact, make it -100,000 life points from me and +100,000 life points to you good sir.
Very interesting article. Much of the management science is looking more and more at bottom up decision-making as opposed to top-down for the reasons you mention.
It works in economics too, as far as decentralization of information and decisions.
Have you read Hayek's essay: The Use of Knowledge in Society?
http://www.econlib.org/library/Essays/hykKnw1.html
I think you would like it. It's an all time classic. He was on to something way back then...
Adam
When is the best time to alert top management that decentralization could be a solution for the above?
I once worked for a certain Fortune 300 company where the CEO would constantly promote flex time as a great way to save the company money and keep employees happy. At nearly every quarterly town hall he had with employees he'd tout the benefits of flex time and remind managers to fit flex time into the workspace if employees wanted it. This company had over 20,000 employees and simply put the CEO's message was not received by every manager in the company. Towards the end of my time there the CEO kept receiving questions about flex time and at a town hall announced that he was done taking questions about flex time and that the employees should figure it out because he already gave flex time his blessing numerous times.
The trouble this CEO encountered was that the company was very hierarchal. My boss did not receive word from her boss to institute flex time so as far as our department was concerned no one was to get flex time. My point here is that the CEO simply did not see the company the same way the employees did. There was a lack of true communication and action between the two groups because the company was simply too big for one person to manage everyone.
Other warning signs are a lack of employee engagement in the company, disregard of formal rules (due to a disconnect between the top of the company and everyone else), and a lack of guidance for employees. There are certainly more warning signs but they all have a commonality that communication between the top and the rest of the company is not functioning smoothly.
Your second question is a bit tricky Enrico, as top management could be very resistant to decentralization. In a centralized structure, the top management holds a lot of power and feels they are a big reason behind the company's success (hence exorbitant executive salaries). As such top management could see decentralization as disastrous to the company and their leadership positions. Good leaders will be able to delegate and will institute decentralized structures on their own in order to keep the company functioning. The best time to alert top management about decentralization would be before they ever become managers!
Unfortunately that is not always realistic so the best time would be as soon as you start seeing problems from a centralized structure placing limits on a company's growth and success. If this is in relation to a real personal situation, be careful how you word this suggestion so as to not upset the top executives. Phrase it as empowering employees to have more control over their task as those employees know the tasks better than anyone else, not as a lack of good communication or leadership.
If you'd like any advice on such a situation, feel free to send me an e-mail.
Your articles and responses are very insightful. Thank you.
Our manufacturing company (1200 employees - and a subsidiary of a major global organization) is considering centralization of certain divisions. In your postings, you mainly focus on centralization vs. decentralization. Can you provide some additional insights into what divisions or functions, (for example, IT, purchasing, administration, engineering, strategy, maintenance, etc.), are best suited for centralization? In addition, if you have any guidance as to what materials, papers, etc. are available on the internet to assist me in this evaluation, I would much appreciate it.
Thanks.
In your company's situation, it would seem most of these departments are best suited to decentralization. The company is large enough (especially if considered as part of its parent corporation), where individual employees should be empowered to make decisions at their workstations. Doing so will increase each employees' efficiency and satisfaction, including middle and upper level managers as they will have less mundane tasks to approve and disprove and can focus on the bigger picture.
Your company's implementation of either structure will ultimately be a greater indicator of success than the structure. If decentralized employees are given total free reign, chaos may ensure whereas completely centralized employees will lose their creative & analytical human traits as they are forced to seek managerial approval for everything.
Certain functions do lend themselves to centralization though. For instance, purchasing would be a good choice for centralization to ensure the company as a whole receives the best bulk rates and doesn't waste material. However, a completely centralized purchasing department would delay supply orders and thus reduce manufacturing effectiveness. In other words, it's really a unique decision and can change company to company.
Honestly, I'd need to know some more information about your company before giving you a complete answer. Feel free to send me an e-mail if you wish to chat in private.
Actually decentralizing the system may make for some efficiency gains. For instance, allowing patrons to return books to any branch. In general though, I'd imagine that each branch will need librarians on hand but that one main web-site could be set up to show the inventory at each branch. You can also consolidate donations and purchasing departments and have on managing department that oversees all four branches. I'd need more information on the current situation and the goals of a centralizing effort but in general using the internet to connect all four branches and consolidating decision making in one branch should make for a relatively easy centralizing effort.
By the same token though, decentralizing the branches even further and giving individual librarians control over what books to buy and other policies could eliminate the need for a large managerial department and thus cut costs. It all depends on the specifics really. Anything is possible though!
very nice article. what's the name of this textbook please?
i'm really interested.
thanks
Note, that is an affiliate link so if you do order the textbook via Amazon I receive a small piece of the pie from Amazon to help pay for the upkeep of this site.
:-)
Thanks for stopping by!</img>
A function of how much decision-making authority is pushed down to lower levels in an organization; the more centralized an organization, the higher the level at which decisions are made.
Decentralization:-
The pushing down of decision-making authority to the lowest levels of an organization.
In your opinion, which of the above (Centralization vs. Decentralization) is a more successful method of management and why?
What you think about it,
If I had to choose one I would go with decentralized structure as it empowers employees and frees up the boss/owner to focus on the big picture.
thanks.
it really helps us answer our case analysis in our management class her in the Philippines
thanks a lot for all the articles and the extensive replies. It is a great services you offer to however is interested in this subject.
i really admire people like you that share their experience freely.
Regards,
Paolo
thnx so much by exchange the idea about decentralization and centralization...it really help me a lot in order to complete my assignmnet. althought i study about government and rest of you talk in business, but the concept still same and i still able to apply and adopt in my task.
thnx again.
Very nice article about the relationship between centralization and decentralization!!
Both centralization and decentralization are important. The severe economic recession may be caused by the decentralization because the government does not have a centralized control of the companies. In my opinion, it is also important to introduce the predict mechanism because the situation may be drastically worse when the managers realize the real situation.
Generally, it is hard to solve all problems because it is up to human beings who act and decide.
The recession might be caused by decentralization, but likewise some of it is due to the government exuding too much control, for instance forcing companies to give mortgages to unqualified buyers in an attempt to boost home ownership.
Yes, managers it seems take a particularly optimistic view. Part of the job description almost requires it, because if your boss is gloomy about business prospects you'll likely begin looking for other work ahead of time and thus your performance and your company's performance will suffer. I don't blame CEOs for being cheerleaders for their companies and saying everything will be OK, however the media, government, and investors should have realized this and not blindly accepted a CEO's words as truth.
Thanks for the thoughtful comment Ken.
sir i hav one qustion that in decentralized organiztion is it possble that the low managment or workers can directly contect with top management with out interferance of middle level management?
plese reaply me
Thank you again
Employees would be happier and more motivated to carry out the vision and mission of the company if he or she feels that they are really a part of the company in that way. You can't tell someone that they are an excellent employee or the team lead but will not give them the opportunity to control that. In order to properly control a low end position there needs to be assistance from the chain of command. Some companies do need centralized structures due to risky markets and uneducated employees on a global level.
It is up to the top management to decide this, but even if centralized is chosen managers should not forget to what goes down doesn't come up always. What goes up must come down, and the organization would be more intact as a whole and aware of unsensitive inforamtion and innovation.